USDCHF Breaks Neckline Support of Head and Shoulders; A 100-Pip Drop In Sight

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Written By: Angeline Feliciano
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    Summary:
  • USDCHF dropped sharply ahead of a report from Switzerland. Consequently, the currency pair broke the neckline support of a head and shoulders pattern.

We saw some volatility on USDCHF in today’s European session. The currency pair fell by around 0.30% minutes before economic data from Switzerland was released. According to Credit Suisse and CFA Society Switzerland analysts grew less optimistic about economic conditions in January. The reading came in lower at 7.7 than December’s figure at 8.3.

The price action on USDCHF seems to have had more to do with market sentiment than the report. Concerns about the novel coronavirus has been haunting investors on news that the infection is spreading outside of China. Consequently, this has highlighted the demand for safe haven assets.

Isn’t the dollar a safe haven?

Yes, the US dollar is a safe haven asset but so is the Swiss franc. The latter is often regarded as an alternative to gold. This is because Switzerland has the most gold reserves than any other country. The reason why USDCHF dropped could be because of yesterday’’s disappointing US consumer confidence report. Investors could also be squaring their long USD positions ahead of the roster of data we’ve got scheduled for this week.

Read our Best Trading Ideas for 2020.

USDCHF Outlook

On the 4-hour time frame, USDCHF has formed a head and shoulders pattern. This is evidenced by the lower highs that the currency pair made after a series of higher highs. It even looks to have broken support at the neckline around 0.9750.

As of this writing, USDCHF is testing support at the 200 SMA. If there are enough sellers in the market, a close below 0.9726 could soon trigger a drop to 0.9627 where USDCHF bottomed on January 31.

It’s worth pointing out that it is not uncommon for the market to retest the neckline for resistance. However, be wary of a rally above this week’s highs at 0.9815. This would invalidate the head and shoulders pattern and hint at a potential bullish move to 0.9840 where USDCHF topped on February 20.

Written By: Angeline Feliciano

Angeline Feliciano has been trading Forex for over ten years. She has invaluable experience working in FX education companies like BabyPips.com and Learn to Trade as a trader, currency analyst, trading coach, and presenter. Aside from these roles, she has also created intensive educational content on fundamental analysis which is heavily sought after by retail traders. She has taught hundreds of people how to trade the FX market in the Philippines and in Australia. When she is not trading, you can find her in the gym lifting weights.

Published by
Written By: Angeline Feliciano