On Monday I mentioned the descending channel that’s been forming on USDCHF since the 2016 high at 1.0255. At the time the pair was trading well below resistance at 0.9740. Fast forward to the end of the week, and we can see that buyers are now testing channel resistance for the fourth time since its inception.
This is an important developing in and of itself because just four days ago the level had only been tested twice. Typically when a market begins applying consistent pressure to an area, a breakout is just around the corner.
The recent move higher is also in line with Monday’s commentary. Here is an excerpt from that post:
…the fact that the pair has been coiling tighter since the beginning of April suggests that the ensuing breakout could be quite volatile. It also serves as a hint that we may not need to wait much longer to find out what will come of the consolidation that has consumed all of 2016.
The price action over the past few sessions has indeed been volatile, so it seems a year’s worth of coiling is finally beginning to unravel. Per my comment above, it also appears that we may soon find out if the wait was worth the potential reward.
But the timing of such a move isn’t as important as the break itself. For next week I’ll be keeping an eye on the 0.9815 area. A daily close above it would have us watching for a buying opportunity on a retest of the level as new support.
Alternatively, if sellers manage to hold their ground we could see the pair return to recent support at 0.9650. However, waiting for the pair to clear channel resistance is the prudent way to approach this to avoid getting caught in the chop. Of course, that’s just my opinion.
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