USDCHF bounces off target support, but can it give buyers more comfort?


USDCHF has stalled near a swing zone since April

USDCHF fell sharply on Monday and fell further on Tuesday. Wednesday and Thursday saw choppy action but remained above Tuesday’s low.

The price action was up and down today, but the price of USDCHF extended to a new low for the week and also traded at the lowest since April 21st.

Looking at the hourly chart, the low price at 0.95442 today has stalled in a swing up zone from April 20 to April 25 between 0.9535 and 0.9552 (see the red numbered circles and the yellow zone in the graph above). The price on April 25 returned to that swing zone before quickly returning to the upside and restarting the uptrend, but eventually took the price to the cycle high of 1.00637 reached on May 16. Since then the price has fallen 8 out of 10 trading days culminating with the new low reached today.

Technically since May 17, the price has been able to stay below the descending 100 hourly moving average (blue line). The slowdown in the downward trajectory this week allowed the 100 hourly moving average to catch up to price. The moving average is currently at 0.96154. A descending trendline on the hourly chart intersects just before that at 0.9605.

If the bulls want to regain more control, it would take a move back above the trendline and the lower 100 hourly moving average to give them a short-term win in what has been trending like the move to the decline since the breakout of the 100-hour Moving Average on May 17.

Taking a broader look at the 4-hour chart below, the price action this week has taken the price below the 50% retracement of the rise from the March 31 low. This level sits at 0.96295.

USDCHF

USDCHF fell faster than it rose

Recall that the upward move (from the March 31 low) sent USDCHF up 868 pips in 32 trading days. The drop has now taken the price down 521 pips in 10 trading days.

What was the strong and quick upward move was followed by a stronger and faster downward move.

This oversold condition may give buyers dipping against the swing zone a reason to stick a toe in the water against the zone. Stay above the swing zone and buyers are satisfied. Move above the trend line and the 100 hourly moving average at 0.96147 and you will be more comfortable. Move above the 50% at 0.96295 and there is even more comfort. In the absence of this, sellers are still in control. Don’t forget that.

I never do this, but the RSI on the hourly chart has been diverging for a while now. A word of warning, however, is that the RSI has diverged this week, lower lows have been hit multiple times with limited upward moves. In other words, the market continued its downward trend.

Trends and fast direction tend to go further than traders expect, which can be dangerous for traders using oscillators to try to capture bottoms.

As a result, I always define risk relative to a hard level like the aforementioned swing level (it could also be a trendline, moving average, or retracement level). These levels define risk and limit risk without relying on an oscillator that could continue to diverge in a trending market without significant retracement.

USDCHF

USDCHF has divergent RSI and has been diverging for some time


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