The USDCHF pair bounced strongly from the lows. It is one of the currency pairs that suffered the most during the pandemic due to the CHF’s safe-haven status.
Despite the SNB not making a secret that it constantly intervenes to weaken the CHF, the pair dipped below 0.90 at the start of this trading week. However, in doing so, it gave bulls at least three reasons to look for bounce and a bullish reversal.
First, the 0.90 is a round number. It acts as a psychological level, just like the parity level does. Second, a bounce from there means a possible double bottom is in place. Third, the dip lower came in the context of a bullish divergence with the RSI.
Besides the three technical factors arguing in favor of a higher USDCHF, the fundamental picture changes too. NASDAQ 100 was not very “happy” by yesterday’s news that a promising COVID-19 vaccine may come sooner than many expected. In fact, the index dropped as many investors sees it as overvalued due to a possible bubble in the tech sector.
If that is the case, it will push the USD higher because the COVID-19 rally was mostly driven by the rally in the tech sector. As such, the USD declined on the tech sector upside move – will it appreciate on a tech sector underperformance?
The safest way to trade it for bulls is to wait for a break above the 0.92 level. Next, bulls may want to set the stop-loss order at 0.91 and set the target at 0.94. This way, the 1:2 risk-reward ratio is assured.
However, the measured move of a double bottom represents only the minimum distance the market should travel. As such, a better approach would be to wait for 0.94, book half of the profits, raise the stops at break-even, and aim for a much bigger risk-reward ratio.
