Key Points:
- Post-election rally is running short on momentum.
- Technical bias is moving towards bearish.
- Losses could extend to the 1.09 handle.
Some strong buying pressure over the past 48 hours has put the EUR/CHF in a rather precarious position which suggests a correction is now on the cards. Indeed, we are seeing a number of important technical signals beginning to shift to bearish which could see even the 1.09 handle challenged within a number of sessions.
Firstly, and probably most obviously, the proximity of the pair to the 1.0979 mark should have a few alarm bells ringing for the bulls. This price has repeatedly proven itself to be a point of inflection for the EUR/CHF and we have no real reason to doubt that this latest challenge will be met with a similar fate to those seen previously. What’s more, the presence of the long-term descending trend line is bound to work against the bulls and encourage the bears to wrest control back from their counterparts.
However, we can also look to a number of other instruments to support our bias as they are also highly suggestive of a near-term slide for the EUR/CHF. In particular, the stochastic and RSI oscillators paint a clear picture of what is likely to be next. Specifically, both instruments are deeply overbought territory which would typically indicate that selling pressure is set to pick up as the bulls exhaust themselves. Moreover, the Bollinger bands are highly divergent which drastically limits chances of a second breakout taking place.
Once momentum has reversed, we expect to see losses extend to around the 1.09 handle within a week or so. Currently, expectations are that this support remains intact in the absence of a major fundamental upset for a number of reasons. For one, it coincides with the 23.6% Fibonacci level. However, a more compelling reason to suggest that the level will hold is due to the fact that this price has also been a historical reversal point on numerous occasions.
Ultimately, upside risks are looking very limited moving forward and the downside risks are multiplying at a notable rate. Furthermore, given the recent uptick in volatility, any correction to the downside could be more severe than we would normally forecast so don’t get caught out by being late to the party or by ignoring the deteriorating technical bias.