Free Profitable Forex Newsletter
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Taking A Risk: Tactical Long USDCHF
Bad times for everyone means good times for the currency of Switzerland - the Franc. Recent times have been such times when the Swiss Franc strengthened notably versus most of its peers due to risk aversion flows.
EURCHF and USDCHF are both still down for the month of August as the risk-off environment persists. Prolonged and escalating US-China trade tensions, worsening of the prospects for a Brexit deal and further slowdown in the world’s major economies are adding to the negative mood for markets.
CHF is becoming too strong
For CHF bulls that is great news, but not for the central bank of Switzerland. The SNB is definitely not happy with the appreciation of the Franc and with EURCHF near the 1.08 level it has every reason to worry. Such price levels for EURCHF are certainly considered intervention territory by many, and in fact, the SNB has already been
intervening in order to slow down the appreciation of the Franc.
The main question on investors’ minds now is "will the SNB do more to stop further strengthening of the Franc"? - With the European Central Bank set to restart QE, the bearish pressures on EURCHF will intensify and hence the pressures on the SNB to do more will as well.
The latest recovery in risk appetite helped USDCHF to rebound, and chances are it could extend from these levels going into the pivotal month of September when both the ECB and SNB are expected to provide new easing measures to stimulate their economies. The US Dollar, as one of the safe-haven currencies and one which central bank still remains the most hawkish one, looks set to strengthen some more in this environment.
Looking to buy USDCHF tactically around current levels looks likely to be a good trading opportunity. The risk is small compared to the potential reward. The USDCHF technicals are looking particularly good with an inverse head and shoulders pattern on the 4-hour chart soon to be completed. The daily chart also confirms the bullish shift as the price bounced at the 0.9700 support area by forming a bullish engulfing candlestick pattern.
Such patterns that occur at support normally provide good trading opportunities if the risk-reward is good. In this situation, we can take things to the next level by watching the 4-hour chart also and confirm the bullish change in trend with the inverse head and shoulders pattern.
Once the head and shoulders is confirmed with a bullish breakout of its neckline (above 0.9780) it will be highly probable that further bullish price action will follow. The target projection of the pattern is near the 0.9900 level. While as per the daily timeframe the major resistance is slightly higher at 0.9950.
- Wait for a bullish breakout of the head and shoulders neckline (above 0.9780). In this way both this pattern and the engulfing candlestick pattern on the daily chart will be confirmed - increasing the chances for success.
Stop loss:
- Place the stop loss behind the right shoulder of the head&shoulders pattern, i.e. below 0.9700 which is also the big support zone in this case.
Targets:
- 1st - the 0.9700 target of the head and shoulders (projection of the head height)
- 2nd - toward the 0.9750 resistance zone
Trade signals from the past week
- Entered August 14, 2019 – Short EURUSD from 1.1150 (in progress) – trade signal sent on Friday, August 9
TOTAL: 0 pips in the past week
TOTAL: +1185 pips profit since October 1, 2018
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