USD/CHF Close To Historical Low

Wednesday, 29 September 2010

On a weekly chart of the USD/CHF, it would be clear to anyone – even someone who was not a financial trader – that the currency pair has been in a downtrend over the past 6 months of so. Almost every weekly candle since February has been red – indicating downwards price action.

From a technical perspective, this is significant – because it shows the clear outlook of the currencies for both countries. Traders have clearly been hugely pessimistic about the USD, and equally as optimistic about the Swiss Franc – which has caused the one sided price action.

However, if the current state of affairs continues, the currency pair is in for an all-time low. Currently, the low of the currency pair – since it was first floated to the market is at .9635. This low was set in March of 2008.

Price action, as at the time of writing this, is at .9760 – which as you can see is just over 100 pips from the all-time low. So, the big question on everyone's lips is – will the USD/CHF break down through that March 2008 low and set a new record?

To analyse this question, we need to take an overall look at aggregate pricing behaviour in the market. Thus far, we have a long term, downwards trend line in place which joins the top from early 2009 to the top recently in April 2010.

This is the basis for our expectation. However, since this second top, we have also been able to draw a very steep trend line from the high, all the way down to the current candle for the previous week – without the price breaking through.

As far as momentum is concerned, the currency pair has definitely been on the down – with very little sign of any easing.

However, as the pair approaches the low, we would expect the support from that significant historical point to come in to play. Hence, we would be expecting the currency to halt or stall for a few weeks at the .9635 level, before making a move in either direction.

The two options would be that a break to the downside would occur – and this would happen with a significant amount of force through the previous low. The alternative here is that the currency pair would simply bounce off the low, and return upwards for a correction. In our opinion, and with further guidance from the MACD and RSI – we believe that the currency pair will stall and head higher – at least in the shorter term.

Given the level of momentum already seen, we think it would be nearly impossible for this to continue, and to have enough force to plough through the support level.