The week and month started with the USDCHF breaking higher. An inversed head and shoulders pattern that took over two months to form just ended with today’s breakout. The measured move points to 0.9050 and beyond, opening the gates for a sharp USD reversal across the FX dashboard.
Because the USD/CHF is strongly correlated to the EUR/USD, a move higher in the Swiss major means that the EUR/USD should move lower as well. Out of the two, the EUR/USD weighs more on the FX dashboard for the simple reason that it makes almost half of the dollar index. Therefore, the breakout in the USDCHF pair has multiple implications on the FX dashboard, as it may signal a reversal in the dollar.
Let’s not forget that the mega-consensus this year is that the dollar will decline – the only question is how much it will depreciate? Hence, a breakout in the opposite direction may trigger some stops as the market participants are positioned on the opposite direction.
The inversed head and shoulders pattern forms at the end of bearish trends. In this case, it took two months of consolidation before today’s breakout. Bulls may want to stay on the long side with a target at 0.9050 and beyond and a stop-loss order at 0.8875.
