During the session on Thursday, the USD/CHF pair struggled to keep gains, and as a result ended up forming a shooting star, one of my favorite sell signals. On top of that, we formed the shooting star right along the 100 day exponential moving average, and just below the parity level. This of course will attract a lot of attention in general, as the large, round, psychological number will always bring out the order flow.
The turn around was also at the 50% Fibonacci level, so there is always going to be a lot of interest anyway. Remember, although the US dollar is considered to be a “safety currency”, the Swiss franc is “safer.” Most of the time, the US dollar will strengthen when there is a lot of concern, but the Franc will do so against even the greenback.
This is an absolute classic sell signal as far as the structure is concerned, so with that the trade is an easy one for us to take on a break of the bottom of the candle. There are other markets around the world that look as if they are showing signs of concern as well, so in this sense it makes a lot of sense that this pair continues to fall from here. The bounce has been strong, perhaps too strong as it looks like a classic “dead cat bounce.”
Typically, the France will follow the Yen, and there are several Yen-related pairs that look like they are going to favor the Japanese currency at this point. All things equal – we think this pair will reach towards the 0.96 handle next. A break above parity would have us rethinking the situation. However, with all of the fear out there, and the Federal Reserve looking very unlikely to raise rates again in the near-term, we like this set up.