EUR/CHF: Another Verse In The Bearish Song?

 | Apr 16, 2015 03:41PM ET

Two weeks ago, Thursday, we highlighted the importance of the 1.0400 level in EUR/CHF, concluding that, “If EUR/CHF drops through support at 1.0400, a continuation down toward the 50% Fibonacci retracement at 1.0260 is possible by mid-April”. Lo and behold, Wednesday marked the middle of the month and EUR/CHF came within 15 pips of the key 50% Fibonacci retracement at 1.0260 overnight. Of course, our analysis doesn’t always play out nearly as neatly, but as long as EUR/CHF continues to march to a clear technical rhythm, traders can look to take advantage of its moves.

Merriam-Webster’s dictionary defines rhythm as “a regular, repeated pattern of events, changes, activities, etc.” and by that definition, the consistent trend in EUR/CHF definitely counts. Since peeking above 1.0800 nearly two months ago, rates have repeatedly stalled out against bearish trend line resistance (see chart below). The trend line is declining at a rate of roughly 80 pips per week, keeping medium-term swing traders on beat, much as a metronome would for a musician.

Like any good song though, the rhythmic trend in EUR/CHF will eventually come to an end and the price action will soon give a clue about whether we’re likely to see another verse. Rates are testing the aforementioned key support level at 1.0260, and we’re also seeing a bullish divergence in the 4hr RSI indicator, showing that the selling pressure is fading. If rates manage to break above the reliable bearish trend line tomorrow or early next week, bulls may look to target 1.0400 or 1.0500 later this month, while a break below 1.0260 support could lead to another leg down to the 61.8% Fibonacci retracement near 101.30 next.