Is there a potential reversal on the horizon for USDCHF?
- USDCHF’s strong rally since July appears to have stalled
- This is the first attempt by the bears to regain market control
- Momentum indicators could be close to sending bearish signals
USDCHF is edging higher today, trading a tad below the 0.9187 level as the bears are trying to show their strength after a very aggressive rally since the July 27 trough. This is the first proper reaction from the bears with the bulls currently taking a much-needed breather.
Turning to the momentum indicators there is increasing evidence that a bearish move could be on the cards. More specifically, the Average Directional Movement Index (ADX) is dropping towards its 25 threshold, signalling a quickly deteriorating bullish trend, and the RSI is trading a tad below its 50-midpoint. More importantly, the stochastic oscillator is preparing to break below its overbought territory. Should this take place, it would be considered a strong bearish signal.
Should the bears feel confident, they could try to quickly break the 0.9025-0.9071 range that is populated by the May 7, 2015 low, the 78.6% Fibonacci retracement of the January 6, 2021 – October 21, 2022 uptrend and the 200-day simple moving average (SMA). Lower, the busy 0.8903-0.8931 region could be the first real test of the bears’ determination.
On the other hand, the bulls are probably preparing to overcome the February 16, 2018 low at 0.9187, and then set course for the busier 0.9288-0.9314 area. This is defined by the October 6, 2011 high and the 61.8% Fibonacci retracement. If successful, the bulls could be then given the chance to record a new 2023 high, provided they surpass the 0.9443-0.9452 range.
To sum up, USDCHF bulls are probably taking a breather after a nonstop rally. However, the bears seem determined to recoup part of their losses, especially if the momentum indicators send supportive signals.