Key Points:
- The pair is now challenging a strong zone of resistance.
- Stochastics are firmly in overbought territory.
- MACD divergence signalling underlying weakness in the pair.
The ongoing and, so far, effective efforts by the President-elect to bid up the dollar and, by extension, the swissie, has been taken by some as evidence that the pair should trend higher this week. However, continued bullishness from the swissie is now coming into question despite the pair’s strident push to the upside over the past number of sessions. Specifically, the unexpected resurgence of the USD has brought the USD/CHF into a rather precarious position which could result in an almost equally severe swing back to the downside.
From a technical perspective, the story is looking decidedly bearish as the pair is challenging what could be point of inflection and the beginning of a subsequent downtrend. As shown below, the surge in pro-dollar sentiment has brought the USD/CHF to the upside constraint of the long-term rising channel structure. Moreover, the pair is currently resting just beneath the 61.8% Fibonacci retracement level which will be fortifying resistance moving forward.
However, given the voracity of the recent surge in buying pressure and the highly bullish EMA bias, one could forecast that a breakout is in the wings for the later part of the week as opposed to a reversal. Fortunately for swissie bears out there, there are at least two other strong signals intimating that the pair is ready to move back into decline.
Firstly, and probably most obviously, stochastics are deep in overbought territory and the RSI reading is on the verge of becoming overbought as well. A second and much less obvious technical signal for a rather swift swing back to support is the apparent MACD divergence that is now developing. Whilst only the daily divergence is shown on the above chart, the trend is mirrored in both the hourly and 30 minute charts. Consequently, the recent rally could be obscuring the underlying weakness in the USD/CHF which may come to a head in the near-term.
Ultimately, it remains unclear whether or not Donald Trump can continue to prop up the USD or whether further policy announcements will be taken poorly by the markets. However, as described above, the technicals suggest that the recent surge in the USD could be somewhat more tenuous than it might, at first, seem. This being said, it is unlikely that the greenback completely collapses anytime soon. Rather, a period of cooling-off could occur and undo a sizable portion of the prior week’s gains. This would bring USD pairs back to support and, in the case of the swissie, this could be as low as the 0.9819 level.