1.20 proves to be a decisive level for the GBPCHF cross. One of the most active currency pairs part of the FX dashboard, it lacks direction recently due to the price action seen in the two major pairs it represents – the GBPUSD and the USDCHF.
On the one hand, the British Pound benefited from renewed investors’ interest. Hopes that a Brexit deal will be reached before the December deadline propelled cable higher. Coupled with the generalized USD decline, the move higher in the GBPUSD major is not surprising.
The CHF appreciates during the economic crisis. This time is no different. Just like the USDJPY, the USDCHF declined significantly, a move driven mainly by investors’ flight to safe-have currencies – the JPY and the CHF.
Until the dynamics between the two major pairs change, the GBPCHF will keep looking for direction. However, the pair keeps finding buyers on every dip lower, fueling expectations of a bullish break.
With little or no news out of the United Kingdom or Switzerland, the GBPCHF traders are stuck with the technical picture. The cross pair evolved in a horizontal consolidation for the last few months, with the 1.20 level containing any attempt to break higher.
Yet, the price coils or builds energy to pop above after it formed an inversed head and shoulders pattern with the head at the 1.16 level. The price often retests the neckline – it did so twice so far.
For the entire month of August so far, the GBPCHF cross sits just below the 1.20. A potential breakout opens the gates to the measured move of the huge pennant formation and points to 1.30 in the medium to long term. Therefore, any trade resulting from this consolidation should be viewed as a swing trade, expected to take months to reach the target. To play it, wait for the GBPCHF to properly break 1.20. Therefore, place a pending stop order at 1.2075 with 1.19 stop loss and targeting 1.30.
