Technical Sentiment: Bullish
- GBP bulls are taking a break near January 23rd High;
- CHF Trade Balance and Employment Level will be released Tuesday morning;
- A retracement towards 1.5000 is very likely this week.
GBP/CHF movements have been pretty much one-sided since the middle of March. The Daily uptrend couldn’t find any resistance strong enough to cause a deep retracement along the way. With the pair now facing 2014’s high of 1.5122, a small sell-off is expected toward the nearest support before the uptrend can resume.
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The market failed to price in a fresh yearly high for GBP/CHF as traders remained seemingly unimpressed last week, with GBP’s GDP estimates dampened by the increase in Public Sector Borrowing. On Tuesday morning the Swiss Franc expects a small lift, with positive expectations for both the Trade Balance and Employment level.
GBP/CHF movements remains constrained within the boundaries set on Thursday, May 22nd, forming the 2nd Daily Inside Bar. The current resistance is at 1.5115, just 7 pips shy of 2014’s Highest level of 1.5122.
Daily Stochastic is in overbought teritorry. Due to the recent rally the indicator has peaked again, suggesting a small correction is due. A dip below 1.5054 will open the way towards 1.5010. Besides protecting the large round number 1.5000, this level offered perfect resistance earlier in May, consequently it could become a pivot zone and provide support as price tests it from above. If GBP/CHF manages to crack the 1.5000 handle, 1.4900 is the strongest confluence where the pair should find enough support (strong price pivot zone, 200 Simple Moving Average on 4H time frame, bullish trendline).
If the Trade Balance falls short of 2.43B and Employment Levels do not reach the forecast of 4.21M, then we can expect the pair to rally above the resistance with little effort. The first major resistance lies at 1.5246, followed by 1.5348. Ultimately, if 2014’s Highs are breached, the long term target for the following months might be 2012’s High of 1.5480.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets