The USDCHF fell yesterday and threatens to break below the 0.90 level again. However, it met dynamic support at the upper edge of a falling wedge pattern, bringing a bullish perspective for the aggressive trader.
And USDCHF lower.
Because of the EURCHF’s subdued volatility, the correlation between the EURUSD and USDCHF pairs reached almost -1. As a reminder, a value of -1 shows two financial assets perfectly correlated. In this case, they are negatively correlated. In other words, when one moves to the upside, the other one move to the downside, no matter the input that creates the move.
Yesterday’s input came from the ECB’s Lagarde. The press conference that followed the ECB’s interest rate decision showed hesitation from the ECB. Or, at least, the way Lagarde presented the Governing Council’s view was inefficient.
Instead of focusing on the lower core inflation and the outlook for even lower values, the Lagarde emphasized the strong rebound in the Euro area economic growth. Not quite the message one wants to send to markets when it also signals that the ECB stands ready for more stimulus.
As such, the market took it as a hawkish message, and the EURUSD moved above 1.19. With it, the USDCHF tanked, based on the negative correlation mentioned earlier. However, it found support and a dynamic level, opening the gates for a two-step trading plan on the long side.
The move lower reached the previous falling wedge formation. That trendline acts as a support and represents a reason for bulls to go long at the market – the first step in a bullish plan.
Next, bulls would like to see the USDCHF price action exceeding the 0.92 level. This is the level where it hesitated previously, and a break there should trigger more upside potential – the second step in the bullish plan.
A move below 0.90 would invalidate the bullish scenario. As for the take profit, bulls may want to consider a 161.8% extension from the entire move from 0.90 to 0.92 – more than three hundred pips to the upside.
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