EURCHF Caught In a Bearish Trend

EURCHF Caught In a Bearish Trend

By: Darryl Frankfort | Where To Trade | On:14-10-2014 05:38
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Key Highlights

  • EURCHF has been untradeable
  • Fibonacci levels acting as support
  • Multi-month bearish pattern formed
  • 1.200 artificial supports
  • Technical indicators

 

EURCHF

Since the SNB introduces an artificial support in 2011, the EURCHF cross has been barely tradable.  Volatility in the pair has been absolutely crushed, on a good month; we can see the pair move just a 100 pips the for the whole period; the equivalent of a day’s move in other pairs.

Traders generally avoid or have lost interest in the EURCHF but now there is renewed interest in the cross; last August, the exchange price at 1.243, reached the lowest we have ever been in two years, just 43 pips above the artificial support.  Last week, we found that an array of fundamental factors is aligned in a way that suggests that we will be seeing the pair below 1.200 in the future. Our task here is to see whether the technical indicators agree with the fundamental outlook.

Since May of 2013 the EURCHF has been on a down trend; it has been reaching lower lows whist reaching lower highs. As of August, from the weekly chart, it is visible that the down trend has fallen into a very visible squeeze between the upper trend line acting as support and December 2012 low at 1.2046. The price now has only 100 pips to maneuver before being forced to break either the trend line or the support.

As the pair slowly descends, the major Fibonacci retracement levels are acting as dependable support and resistance levels with the price finding rejection every time it approaches a major level. The first sign that a bearish reversal was imminent could found by measuring the initial retracement from the peak. It retraced below the 61.8% Fibonacci level in June of 2013. This shows that that the EURCHF bears are indeed strong. We are currently between the 61.8% and 100% fib levels just 80 pips above the 1.200 support.

 

Technical indicators

Monthly chart

From the monthly chart, both the 14period and the 21 period moving averages are trading well above the candlesticks. They have also made a bearish cross; this indicates that the bearish momentum is picking up; we can anticipate the prices to slide lower on the longer term. The stochastic however at 10.10 is indicating that we are at oversold conditions. We can thus anticipate the prices to get some bullish pressures as the bears retreat temporarily. The RSI at 39.77 is giving a neutral reading.

  Where  To Trade - EURCHF Monthly 14-10-2014

 

Weekly chart

From the weekly chart also, the 14 and 21 period moving averages are trading above the prices and have also made a bearish cross. This is an indication that we should be anticipating the prices to continue to with their bearish moves.

The Stochastic and the RSI are both giving neutral readings at 49.49and 40.90 respectively. This should be taken as a trend continuation signal. In the medium term therefore, the bears should continue to dominate.

Where To Trade - EURCHF Weekly 14-10-2014

 

Daily chart

From the daily chart, the 14 period and 21 period moving averages have just made a bearish cross. They are however touching the candle sticks and we anticipate that they will break beyond them. There are four preceding closed candles that are bearish. We anticipate that the moving averages will disentangle themselves from the candle sticks which will give us a signal to go short on the pair.

Where To Trade - EURCHF Daily 14-10-2014

The stochastic has just entered the oversold region at a reading of 18.17; this is a warning that on this timeframe, the bears may be getting exhausted. The RSI is however giving a Neutral reading at 45.45.

 

Wrap Up

Across all timeframes, the moving averages indicate that we should be anticipating the EURCHF to remain bearish. Though stochastic shows that we may be at oversold conditions, we know that we can stay in such conditions for a long time. From this we can conclude that we are likely to keep up with the bearish moves and reach the 1.200.

Breaking or reaching the 1.200 level is a big deal, first if we break blow the level, anticipate getting huge price gaps below it down to the bottom at 1.0067. Fundamental factors allude that we should even be below the current bottom. We anticipate many false moves as we get there. Second, once we near the 1.200 level, expect to find quite severe price rejection. We will also see a pickup in volatility.

A great approach under these conditions is to fade the down trend at the first approach in the short term targeting 100 pips and to short the pair well below the 1.200 level after the first retest of the level.

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