The USDCHF pair completed a bullish setup on the daily timeframe – a combo between a classic and a Japanese technical analysis reversal patterns. On the one hand, the major pair formed a falling wedge that just broke higher. On the other hand, at the opposite end of the wedge, it pulled a morning star pattern – a powerful Japanese reversal one.
The CHF was on a tear higher recently. Not even the Swiss National Bank’s (SNB) buying assets abroad could steam investors’ appetite for the Swiss Franc. If any reversal is in the cards, it is likely to come from the other side of the ocean – the United States.
The USDCHF moves in an indirect correlation with the EURUSD. When one falls, the other one rises. The key to this correlation is the cross, the EURCHF. As long as the volatility in the EURCHF cross remains subdued, the correlation remains tight.
As the EURUSD got strongly rejected at the 1.20 yesterday, it trades now close to 1.18. It means that the USDCHF will have no trouble advancing on further EURUSD weakness. Profit-taking, therefore, seems to be the name of the game.
The ISM-Manufacturing release also showed improved conditions for the sector. Yesterday’s release revealed a growth on most sectors, with only the employment component still contracting. However, while contracting, there is notable improvement there too, when compared to July’s data.
A falling wedge is always rising – every technical trader is aware of this saying. Hence, that is a bullish pattern. Because at the end of it there is another bullish formation, a morning star, we can talk about a confluence area difficult for breaks to overcome.
To trade it, consider going long at market and place a stop-loss at the lower end of the pattern. For the take profit, consider half of the wedge’s distance, as it is usually retraced by future price action.
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