The strong downtrend which had started from the week of May 31, 2010 had taken USD/CHF from 1.1731 to 0.7069 during the week of August 8, 2011. The recovery to 0.9315 from the low of 0.7069 had a very strong momentum and had come as quite promising but then the momentum slowed down even though the pair managed to touch 0.9972. The resistance came just shy of the psychological level of parity i.e. 1.0000 but also just 22 pips above of the 61.8% retracement of the great fall from 1.1731. Since then the pair has been in a very volatile sideways range between the 38.2% retracement support and 61.8% retracement resistance level. In fact we can say that this sideways price action has been in place for over 2 years.
USD/CHF's journey during the past three and a half years
And then the story reverses - Highs going lower and so the bottoms
Let's have another look on the same chart:
This is evident that The first resistance during the recovery was a minor one at 38.2% retracement level. The break came soon and the pair, then found resistance below the 50% retracement level. Till USD/CHF finished the 61.8% retracement, the peaks were going higher and the lows were too. The story seems to have reversed from there. The peaks started going lower and so the bottoms too. However, the one thing which was keeping the pair in check was the support at 38.2% Fibonacci retracement level. The price action was contained above that support.
The 38.2% retracement is at 0.8849. The pair had touched 0.8832 before a recovery to 0.8959. The price did not sustain much below 0.8849, but nevertheless it was a break. And then sometimes initial small indication end up in big moves.
The larger picture and what is expected
Let's have the larger view of the historical price action of USD/CHF during past 10 years.
It is clear that the pair has been is a strong downtrend for over 7 years now. The failure at the 61.8% retracement and then the recent slight break below the above mentioned support may have very strong implications for a continued downtrend. It is not just that USD/CHF might have just finished the consolidation by retracing to 61.8% level and finding the resistance below the parity level but another look tells us that the previous support trend-line seems to have turned into a resistance trend line.
The recent jump
The bearish sentiments have been there in the larger picture but have started coming back into the near-term picture as well. Some further gains towards the 55-day EMA i.e. 0.9020 can not be ruled out but a strong resistance will be expected there. This resistance will be a combined effect of the following 3 forces:
- 55-day EMA
- The short-term trend line resistance
- The psychological resistance of 0.9000 ranges.
In fact the gains can even extend to 0.9060.
With the above resistance if the prices fall below 0.8849 again and manage to sustain below it for sometime then a drop towards 0.8568 to 0.8630 support and then lower can be expected. Considering the overall price -action we do not rule out the possibilities of a fall even towards 0.8240 or more in the days to come.
Safe Haven and "The Safe Haven"
The U.S. dollar and the Swiss franc both have been in the safe haven currency category for long. It is clearly evident that the dollar is losing the grounds the franc in this battle for the status of "The safe haven currency".
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.