EUR/CHF: A Likely Bounce Off The Bearish Trend Line
Blackwell Global | Jun 26, 2014 03:50AM ET
The EUR/CHF H4 chart shows a downward sloping wedge that has been in play since the beginning of this month. The price looks likely to bounce off the bearish trend line and move to the lower end of the wedge.
The EUR/CHF pair is an interesting one. These two currencies are quite correlated when traded against the USD for example, but when traded together we get a sense of the relative strength of the euro. Because the Franc is a safe haven and the Swiss economy very stable, most of the movement is down to the Euro. Another thing to note is the Swiss National Bank’s price floor policy. In order to stave off deflation, the SNB has said it will buy unlimited amounts of currency at €1.20 per Franc. So if this pair ever hits that level it will be one of the safest longs you could ever take.
The advent of stimulus in the EU, in fact the mere mention of it, put enormous amounts of downward pressure on the Euro. This has led us to the current downward sloping wedge we find on the H4 chart below. You will also note that the price is very close to the top bearish trend line.
There is little news out this week for the Euro. The only items of note for the EUR/CHF pair arethe economic barometer reports due out on Friday for both Switzerland and the EU (07:00 GMT for Swiss and 09:00 for EU). The Swiss barometer is expected to fall from 99.80 to 99.10 and the EU barometer is expected to rise from 102.7 to 103.0. These are not ‘big’ news events, but nonetheless could provide some direction for the EUR/CHF pair, so could be worth watching.
The current price is at the top end of the wedge, therefore is looking likely to bounce off the bearish trend line and head back lower. A stop loss should be set not far outside the wedge, which should give this setup a very respectable risk to reward ratio as the stop loss can be quite tight.
The lower end of the wedge seems to suffer the odd false breakout, which could benefit any traders going short on the pair, but should not be banked on. Look for the bottom of the wedge to provide dynamic support for the price action, or for a more accurate level, look to target the support at 1.2159.
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Alternatively a stop buy order can be placed outside to take advantage of a breakout to the upside of the bearish trend. That would certainly be a bigger movement than the one described above, but doesn’t look likely in the absence of any news events.
A downward sloping wedge is in play on the EUR/CHF H4 chart and the price is looking likely to bounce off the resistance level, back towards the lower level of the wedge.
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