Has The GBP/CHF Just Completed A 'C' Leg?
Blackwell Global | May 06, 2016 02:23AM ET
The pound-franc has recently provided some relatively reliable reversal signals as the currency pair has largely swung between 1.3716 and 1.4744 over the past month. However, despite the recent fall in price, the pair might have finally completed the “C” leg of and ABCD pattern and be readying to finally make a move back towards the top of the channel.
Looking at the 4-hour time frame shows that price action has been largely capped over the past few months as a descending trend line has constrained its movements. However, it would appear that an ABCD pattern has been forming since early April and that the “C” leg has just completed during the recent pullback from the trend line. Subsequently, given the length of the prior legs, it would appear that an upside target at the 1.46 handle could now be in store to complete the pattern.
Further supporting the contention is the RSI Oscillator which has also been trending higher, within neutral territory, over the past week. Additionally, MACD has also bullishly turned as the signal line has started to move higher, in line with the recent change in price action’s direction. Subsequently, there are plenty of indications that the pair will make a concerted move to breach the bearish trend line at 1.42 and thereby complete the final leg of the ABCD pattern.
In addition, there is little in the way of fundamental news due out for the remainder of the week which could invalidate the trade. The only data point left in the trading week that could possibly impact the pair would be the CHF Foreign Currency Reserves figures. However, the reality is that there is likely to be little change to the SNB’s holdings given their lack of market intervention of late. Subsequently, I do not foresee any volatility stemming from this fundamental data. Instead, look towards Monday’s Swiss CPI and UK HPI to impact the pair from a fundamental basis.
Ultimately, the pound-franc is predisposed to head in one direction only and that is a significant move to the upside. The presence of the incomplete ABCD pattern, along with buoyant RSI and MACD indicators, lends a strong sense of credibility to the bullish contention. In addition, the risk and reward ratio are relatively strong for a trade with this bias but watch for where you place your stop loss.
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