GBP/CHF Hits New Low

Monday, 18 October 2010

Most investors have been so focused recently on the lows being set by the likes of the USD that they completely forgot about other currency pairs, namely the GBP/CHF. On Friday, this currency pair hit a new low at 1.5090, which undercuts the low set in December of 2008 - at 1.5118.

The chart of the GBP/CHF is not pretty. In fact, it is far from it. The currency pair has been gradually and consistently slipping downwards over the course of the last few months - ultimately sagging to the low reached on Friday.

The big question now of course is - will the GBP/CHF be able to recover, or are we headed for even more lows from the currency pair in the coming days and weeks ahead. If the technical analysis world can provide us with any idea of a direction, it would almost certainly be that the currency pair is in for more losses in the medium term. Let's take a look at why that might be the case in this week's currency breakdown.

First of all, we are looking at the weekly chart of the GBP/CHF. This is the longest term that we use to analyse technical trends and changes - and it is by far the most accurate and reliable.

What you will see when looking at this chart is the obvious downtrend in play. Since about 2 months ago - when the currency pair hit a short term high, the trend has been solidly down - with not one up week since the decline started. Additionally, the MACD is only just turning and moving lower - indicating that the trend we have already seen unfolding could just be the start of something much larger and more dramatic in size.

However, it is the pure speed of the decline which has caught us by surprise. Usually, when the momentum is so high - the currency pair will suddenly stop for a pause to catch its breath. This hasn't happened as yet.

In fact, the RSI is actually pulling back from oversold already - even though really there has been no sign of a correction or pause in the decline.

Together, this means that we could indeed be in for another few weeks of GBP/CHF declines. Our trades are set up to take advantage of further declines of around 300 pips from the current levels, which would obviously set a new low in the currency pair. However, we will be sure to protect these trades with solid stop loss levels, in case the well needed pause comes this week.