Back in mid-September, we closed our long USDCHF trade (entry August 5) at a profit of 190 pips, arguing that a downside correction was possible due to increased uncertainty in that period. 

That has transpired almost exactly as anticipated. USDCHF corrected down from the 0.9250 - 0.9350 moderate resistance zone and has now fallen below 0.92. Here, the price is entering the solid support zone around that same rising trendline that was behind our bullish conviction back in June and August (see chart below). This is the area that is attractive for entering long trades on USDCHF, and most indicators suggest that USDCHF will bounce here again. 

It’s also worth noting that the USDCHF correction is part of the broader dollar correction. But, as we discussed in our weekly analysis on Monday, the USD uptrend is still intact (judging from the current perspective), and the dollar should eventually turn higher. Thus, once the dollar starts broadly rallying again, USDCHF should turn up as well.

The key focus in the following weeks and leading up to November 3 Fed meeting will be the following: 

• the GDP report (next Thursday);
• core PCE inflation (next Friday);
• ISM manufacturing PMI (November 1);
• ISM Services PMI and Fed meeting (both November 3); 
• and finally, Nonfarm Payrolls on November 5

All of these events are crucial for the dollar’s direction going forward. On balance, with the tailwind of the solid US economy, the probabilities favor positive figures on these reports and a slightly hawkish Fed. This should at least moderately support the dollar. If the data beats estimates, then a scenario where the dollar soars massively higher may easily become a reality.

The market is bullish on the dollar, and now that the correction has worked its way for a couple of weeks, the USD may start climbing soon, even ahead of the noted events above. As we said, the expectations for US economic data are positive, so the USD low may be very near at this point.

The risk to the bullish USD call is, of course, if the abovementioned US events miss expectations. Still, it would take several or most of these reports to miss the estimates to fully reverse the USD downtrend, and that looks unlikely at this stage.

We are looking to enter long at the strong support area that is defined between the rising long-term trendline and the broken neckline of the head and shoulders pattern (see chart). They converge between the 0.9100 and 0.9170 levels, meaning that this whole area is the key support area where USDCHF should rebound.

Entry: 

• Around current levels (0.9170) or if possible lower;

Stop: 

• Below the 0.91 August lows;
• The support here should hold off in any potential further declines; hence the stop should be placed slightly below these lows.

Targets:

• 1st: 0.9300 zone around the prior highs (take partial profits here)
• 2nd: 0.9450-0.95
• Longer-term target: potential to reach the 0.98 area or higher

Note: Short EURUSD also remains an attractive trade at these levels. As we discussed in our weekly analysis, the EURUSD rally should stop somewhere in the 1.1650 - 1.1750 area and revert to the downside again. The price is now entering this resistance zone, which means it may be time to establish shorts. On this note, if EURCHF soon bottoms out and starts rising, then USDCHF will be the “safer” and more attractive trade than short EURUSD.

• N/A; Short GBPUSD trade around 1.38 is not triggered yet (trade idea sent on Oct 15)