Ouch! That must have really hurt Ms. USA! The US economy got hit. Again. And it took the US dollar down with it against most major currencies. Today I’d like to conduct a USD CHF forecast as Ms. USA dances against the Swissy on the forex dance floor. I’ll first walk you over the most recent developments in the US and Swiss economy, and then continue on with a full Diamond Analysis on the pair including technical and sentimental stuff.
With US labor market data has evidently started to slip after the huge Non-farm Payrolls (NFP) report for September, and today’s September US Advance Retail Sales report failed to provide any relief to the recently betrayed Ms. USA.
Inflation goals have not been reached and chances of a 2015 interest rate hike remains pretty low, with market participants pushing down this possibility all the way down to March 2016. If consumption trends are weakening – something that may be viewed as a confirmation of the weak NFPs – concerns about a more global slowdown may continue. It’s becoming more and more difficult to envision the Fed making a move on rates any time soon the Federal Reserve’s September FOMC meeting.
However, when it comes to the U.S. economy big-picture outlook, the ramifications are more complicated.
Wednesday’s producer price index (PPI) reading, shows a monthly decline of 0.5 percent, demonstrates a larger problem: At a time when policymakers are hoping to generate the kind of inflation that would indicate strong growth, the reality is that deflation is looming as the larger threat. Declining prices often would be treated as a net positive by consumers, but income weakness is offsetting the effects.
So to put it in simply, A lack of purchasing power for consumers has led to a lack of pricing power for companies.
The wild dance for Ms. USA is not over yet! There is more hot market moving events coming up the remaining of the week that may hit the US economy again:
– Consumer Price Index (CPI) on Thursday at 1:30 PM GMT
-Unemployment Claims on Thursday at 1:30 PM GMT
– Prelim UoM Consumer Sentiment on Friday at 3 PM GMT
Nothing too exciting has come out of the land of peace in the past few months and after the historic jawboning in January 2015. The noteworthy Swiss economy events have been the August retail sales which came in negative and dropped from previous reading to -0.3%, as well as September unemployment claims which rose to 3.4% from 3.3%.
So not necessarily a pretty picture, but no biggie either. The good people of Switzerland seem to remain confident the Swiss economy can overcome lower expectations about developments in the U.S., as expectations continue their upward swing to reach their highest level in more than a year in October
So to sum it up, “Keep Calm and Carry On” would best describe the current Swiss economy situation.
Fundamental Analysis Summary
So with Swissy remaining in the risk-off mode, the true leader of the pair is the US dollar who is facing some trouble that may continue well through the week, unless we finally get some positive news out of the US economy.
The USD/CHF pair confirmed a Double Top chart pattern and broke a key support level and the neckline of the pattern at 0.96 on Wednesday. If you were paying attention during the reversal chart pattern lessons at the Invest Diva Video Course, you’d know that the pair is now likely to move downward the same amount of pips as the distance between the top and the neckline of the Double Top pattern. Which brings us to 0.94 as a bearish target.
Further backing this strategy is the fact that the USD CHF pair broke below the Ichimoku cloud on the daily chart.
Zooming out to the weekly chart, we can’t help but notice a larger-scale double top pattern (call it Grand Pa) also forming on the chart, as the pair zig-zags inside a Triangle chart pattern. This could help us with our longer term trading strategy when it comes to USD/CHF which I’m going to explain in just a little bit.
Not only we can vividly see a bearish sentiment in the USD/CHF market, but the Speculative Sentiment Index also provides us with additional back up.
The ratio of long to short positions in the USD/CHF pair in one of the largest brokers stands at 5.94 as 86% of traders are long. We use this index as a contrarian indicator to price action, and the fact that the majority of traders are long gives signal that the USDCHF may continue lower. The trading crowd has grown further net-long from yesterday and last week. The combination of current sentiment and recent changes gives a further bearish trading bias.
Forex Trading Strategies
If you are already in a bearish position, Mazal Tov! Aim to take profit at 0.9450, which is a little above the support level. Set your stop loss order accordingly keeping the 0.96 pivot and 0.97 resistance in mind.
If you are not already in a bearish trade, I’d say wait for the remaining of the US economy data before making a decision.
Out look remains bearish and especially if the pair breaks below 0.94, that could be your cue to get into a bearish trade aiming the lower band of the triangle on the weekly chart, at around 0.9270.
Alternatively, a break above 0.96 will change to our outlook to bullish with 0.97 as first alternative target.
Here are the recommended supports and resistance levels* for both strategies:
|Support Levels||Turning Point||Resistance Levels|
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.