Despite offering an interesting bullish setup, the USDCHF fails to break higher. The bullish setup comes from the technical perspective, while the fundamental one seems to weigh more for investors at this point in time.
The pair broke higher after a falling wedge formation and then retested the pattern. Moreover, the bounces seem to be the incipient phase of an Elliott Waves impulsive structure.
However, the Fed signaled the other day that it plans to keep the federal funds rate at the lower boundary for the next three years. Hence, a bullish technical setup combined with a dovish USD message from the Fed translates into more consolidation for the USDCHF pair.
The Fed also signaled that it is willing to let moderate inflation above the 2% level. While it did not define moderate, inflation needs to rise substantially above the 2% target and for quite some time, in order for the average inflation to rise as well.
If the Fed will be able to achieve that, it depends a lot on the inflation expectations too. In any case, the Fed’s message was dovish for the USD and, after an initial bounce, the USDCHF gave back its gains.
The technical analysis perspective looks bullish. After breaking higher from a falling wedge (i.e., a bullish reversal pattern), the USDCHF price retested its upper trendline. Next, it bounced with yesterday’s Fed decision.
From an Elliott Waves point of view, the recent correction that retested the wedge looks like a second wave ahead of a third wave extended impulsive move. If that is correct, the next leg higher should exceed 161.8% of the first wave, projected from the end of the second wave.
Therefore, bulls may want to go on the long side with a stop-loss order at the lowest point in the wedge. An impulsive wave cannot reverse beyond its starting point.
Finally, for the take profit, the extension points to 0.9350, more than enough for a proper risk-reward ratio.
