Key Points:
- Testing upside constraint of the bearish channel.
- Heavily overbought stochastics.
- Important fundamentals due this week.
Due to its strong technical signals and the impending bevy of relevant fundamental results, the CAD/CHF could be worth keeping an eye on this week. Notably, the pair is mounting a serious challenge to the upside of its declining channel which could result in a sharp reversal if it fails to break through. Additionally, the Canadian overnight rate decision and a number of employment result releases should see increased liquidity for the pair this week.
First and foremost, the CAD/CHF has been surging strongly higher recently and this has now brought it into conflict with the upside constraint of its declining channel. As a result, the question now is whether the pair can breach resistance and continue its bullish streak, or if it will begin to plunge back to support. Presently, the latter seems the more likely option given a number of key technical readings evident on the below daily chart.
As is shown on the chart, the upper boundary has weathered similar rallies only recently and managed to remain intact. We expect this to be the case once again due to the presence of a daily R1 level generated by a standard pivot point analysis. What’s more, the highly overbought reading on the daily stochastic oscillator should see selling pressure begin to mount as the week continues. Combined, these signals should outweigh any further buoyancy being supplied by the rather bullish EMA bias.
Once a reversal has begun, the CAD/CHF will likely need to descend back below the 78.6% Fibonacci level before a new downtrend is confirmed. Moving beneath this level will be accompanied by a shift in the shorter-term Parabolic SAR readings from their current bullish status to bearish. Once this occurs, momentum should pick up and the pair will begin to decline towards the 23.6% Fibonacci retracement. However, just how soon this downtrend forms is largely dependent on the fundamental results due out this week.
Specifically, the coming days will see a number of key Canadian and Swiss fundamental news items released which are likely to impact this pair heavily. Chief among these fundamentals is the Canadian overnight rate decision which is scheduled for Wednesday and forecasted to come in unchanged. Therefore, a surprise cut could see a sharp downtrend occur within a day or so and, as a result, this announcement will be watched closely. However, if the rate decision proves to be uneventful, focus will shift to Friday’s Swiss and Canadian unemployment rate figures which could also spark a surge in selling pressure.
Ultimately, keep a close watch on both the fundamentals and technicals for this pair going forward as there is some significant downside potential to be had. However, watch out for an upside breakout which could occur if the fundamentals see a major upset in the coming week.