The Weekly Update: USDCHF Technical Strategy

GBP Fundamental Summary

The US Dollar (USD) weakened last week as the market is unconvinced the Fed will hike rates again in 2017. The Fed is currently expected to hike rates in December, the same month the European Central Bank (ECB) is also expected to begin tightening its monetary policy. The impact of the brexit negotiations is difficult for the central banks to assess and may very well alter these expectations should the negotiations deteriorate.

Although we are not focusing on GBP in the weekly update a confidence vote is due this week, possibly on Wednesday or Thursday. Should Theresa May lose the vote she will be forced to resign and general elections are the most likely outcome although there are several possibilities that may take place.

Second round of elections in the UK will result in a credit downgrade, which means GBP may be heavily sold should this be the outcome. As DUP have more to lose than to gain we cannot entertain the possibility of DUP voting against May and even if they do it will require several members from the Conservatives party to join the vote.

Unless the DUP announce their support for Theresa May prior to the confidence vote it is seen as one of the key events this week.

USDCHF Daily Chart

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The Weekly Update: USDCHF Technical Strategy

USDCHF Daily Chart 25/06/17

USDCHF Strategy

USDCHF has painted reversed H&S on the daily chart. The neckline is diagonal but we did also mark 0.9785. The price closed on what may appear to be a firm support level, however, based on our experience we are not convinced it will hold. There is a fair possibility the lower support may be tested (lower blue line) before corrective gains are then expected to materialize.

We cannot determine whether 0.9689 will hold even if USDCHF gaps higher at the opening of the Forex market. Layering a buy limit order may not be the optimal solution as the price can still reverse higher without re-testing the lower support. This is an entry that we may float in a +50 pips drawdown (approx.). A bearish gap at the opening of the market may reduce the size of the required stop and the potential drawdown.

The objective of the reversal is USDCHF reaching parity (1.0000). However, it may take a couple of months for the target to be obtained and we do not wish to remain in the trade for potentially 60 days despite the positive interest. We may opt for a lower target while paying close attention to the possible resistance levels we have marked on the daily chart.

There are many key economic figures and events this week that may impact USDCHF, we cannot highlight a specific figure or event that may have a greater effect on the currency pair. We will wait for the opening of the Forex market and determine how we wish to proceed.

USDCHF Trade Alert

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The Weekly Update: USDCHF Technical Strategy

USDCHF Daily Chart II 25/06/17

USDCHF long at market price (0.9687)
Take profit: 0.9890
Protective stop: 0.9608
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 21 days

Price range

Should USDCHF trade above 0.9720 and you did not opt for the trade we suggest reducing the trade size or dismissing the trade.

Note: There is a potential drawdown of +50 pips (approx.) that may materialize. This is a potential drawdown we are willing to absorb (should it materialize) as we cannot layer a buy limit order as explained in the strategy.

26/06/17 UPDATE: USDCHF is trading at 0.9722 at the time of this writing.

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The Weekly Update: USDCHF Technical Strategy

USDCHF Daily Chart 26/06/17

We are closing 20% of the long trade at market price, we will adjust the protective stop after the daily close (the protective stop was later shifted to 0.9675).

27/06/17 UPDATE: USDCHF triggered the protective stop, we have ended the trade with a minor loss as the protective stop was raised and due the partial liquidation. We are not re-entering the trade. We should highlight that the stop hunt took place prior to Mario Draghi speech that lifted EURUSD to fresh highs.

The Weekly Update: USDCHF Technical Strategy
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The Weekly Update: USDCHF Technical Strategy

Last Updated on July 3, 2017