Market Forecast: GBPCHF squeezed in a bearish triangle at 1.27

TigerWit Africa

The bears will likely drag GBPCHF further downside as post-brexit deal uncertainty pressure the Sterling. Also, bid for safe havens might intensify in the coming days. 

GBPCHF was dragged to the 1.27 psychological level on Wednesday after staying around it since the start of the week. A recovering sterling and the recent strength in the Euro-zone economy put the currency pair in a conflicting position thus causing a bid/ask equilibrium as the bears fight back against the aggressive selling. The near-term trend remains bearish and should continue if the price breaks below the lower boundary of the current sideways range.

The post-Brexit deal might pressurize Sterling

Pound Sterling has been bearish since April 5. A massive 15% decline in the currency’s index ensued until 10th April when it followed with a sharp recovery. However, since the last week, the currency has headed toward the April low. European leaders will have final votes on the Brexit trade deal with the UK as the Northern Ireland protocol remains unsolved. In recent time, Brussels has threatened higher tariffs on UK goods accusing PM Boris of not complying with the post-Brexit agreement on NI. Talks between the UK and EU almost always don’t go easy. Investors understand this and thus started panic-shorting on GBP since the start of April. GBP looks bearish and might continue as a result of the post-brexit deal uncertainties.

CHF to return upside on risk-off?

On the other hand, the Swiss franc has been bullish since the turn of the month as the Euro-zone economy received a big boost. EUR and CHF have been among the biggest gainers in April together with CAD. However, the resumption of risk appetite dampened the bullish mood since mid-April. The swiss index has been in a squeezed position and currently completing a bullish triangle technical pattern. With equities looking overbought and bond yield surging since the beginning of the week, we might see more demand for the safe-haven FX like CHF in the coming days.

GBPCHF technical analysis

A strong CHF and weak GBP should therefore drag GBPCHF further downside. The H4 technical chart below shows GBPCHF bearish ‘cup and handle’ bearish continuation pattern evolving and screaming for a breakout to the downside.

Swing and day traders can watch out for 1.2825 and 1.3075 resistance levels and of course the 1.2650 breakout support. Prime targets should be at 1.2548 and 1.2367 Fibonacci projection levels if the price eventually breaks below 1.265 to confirm this continuation pattern. Also, the LTF chart below takes a closer look at the current ‘consolidatory’ make-up of the ‘handle’ structure around the 1.27 psychological level.

The ‘handle’ is showing a typical 5-3-5 ABC Elliott wave structure with wave B completing a triangle pattern just below the yellow resistance zone. The pair might remain within this range a bit longer as it completes the wave (e) around 1.2725. Eventually, a break below 1.27 should confirm the bearish signal for day and swing traders who aim to get in earlier. The breakdown should be followed by a further slump to target levels mentioned earlier – 1.2548 and 1.2376. The triangle becomes invalid at 1.274 – a good stop loss level for the short-term bears.

Disclaimer: This communication is for informational purposes only and should not be viewed as any form of recommendation as to a particular course of action or as investment advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This communication has been prepared based upon information, including market prices, data, and other information, believed to be reliable; however, TigerWit does not warrant its completeness or accuracy. Trading CFDs involve risk and can result in loss of capital.

 

Leave a Reply