GBP/CHF: Short-term weakness should be followed by resumption of bull trend

The larger pattern in the GBP/CHF remains bullish given the following:

  • Decisive breakout of Head and Shoulders Bottom and also breakout above the 200-day exponential moving average (ema) occurred four weeks ago. (Note: Pattern is not perfect with right shoulder noticeably lower than left. But valid nonetheless given reaction of price following breakout above neckline and 200-day ema.)
  • Subsequently, the GBP/CHF continues higher following breakout and last week breaks out above the long-term downtrend line and closes above it on a daily basis. Even though the pair has closed back below the trend line the move above the line indicates this pair probably wants to go higher.
  • 21-day ema crosses above 200-day ema two weeks ago
  • During minor retracements price was rejected around 21-day ema support several times over the past six weeks and it held. This makes the 21-day ema a moving average to watch for support again in the future.

The 200-day ema was tested once as support during recent pullback and it held. Support may be seen again around the 200-day ema during pull backs.

GBP-CHF

 

Given the above the odds favor an eventual continuation of the uptrend that began off the mid-March 1.2215 bottom. In the short-term this pair is overbought and starting to pull back. However, support of 21-day ema is close by at 1.2814. The probability that we’ll see signs of support around the 21-day ema is higher than normal given that the uptrend line represents the same price support area.  On the below chart the uptrend line is covering the 21-day ema.

GBP-CHF

Regardless, if price continues lower the 200-day ema should halt further declines. The 200-day ema is now at 1.2748.

Watch price behavior around the 21-day ema for signs of reversal on the intraday charts. If the 21-day fails to hold the decent then next watch for support around the 200-day ema.

Upside potential is there given that the target from the Head and Shoulders Pattern is around 1.3865. This is a long-term target and it could take some time to meet this objective if it is to be reached.

In the meantime, lower down, the next main target area is around a price zone from approximately 1.3416 to 1.3582. That resistance zone provides plenty of upside as it’s over 500 pips above last week’s close of 1.2895. (www.marketstoday.net)

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Bruce Powers, CMT
About the Author
Bruce Powers, CMT, has over 20 years experience in the financial markets. Previously, he was President at WideVision, a Dubai based FinTech and IT services company, which published MarketsToday.net/en/, and where he also was Chief Technical Analyst. For the past eight years Bruce has written a weekly column on the UAE stock markets titled \'On the Line\' for the Gulf News newspaper, and has appeared numerous times as a guest on TV business shows. Bruce is a Chartered Market Technician (CMT) and until recently served as Co-Chair of the CMT Association Dubai chapter, which he Co-founded.

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