USDCHF—Rally

Just as the AUDUSD dropped, one would expect the USDCHF to rise, given there is generally negative correlation between the two pairs.

The high so far today has been .9476. This is within the rally zone that I blogged about yesterday (.9448 to .9593). It's hovering here, near the October low of .9463. There is a seasonal tendency for the USD to rally against the Swissy in January. Yesterday, I also noted the positive divergence on the daily, weekly, and monthly charts and the fact that the pair had sunk to new lows in a low liquidity environment.

The question is whether the bullish moves from October and November, which carried the pair to a high of 1.006, are returning. Or should one get ready to short? I did buy yesterday afternoon at .9338 and took some partial profits this morning at .9462. This was a low-risk trade as I could set my stop close by and the low seemed extreme. My dilemma now is whether to reverse.

On the three-hour chart, the pair is not overbought. RSI is over 70 (overbought) on the one-hour chart (not shown). Not until it definitively drops out of that status on the hourly chart would I consider the current rally over. On the three hour chart there is a potential for an evening star formation but this can't be confirmed until another three hour candle forms. My course of action, then, is to manage my stop so as to not give back too much profit. To that end, I've moved it to about the 50% point of the move and may tighten it further depending on subsequent price behavior.

This is a trade, just like AUDUSD, that is going to require close watching. The potential for a big move in the opposite direction is still present (I can find a few ways to forecast .8000 for the USDCHF) which would certainly be a new low to mull over. But the beauty of that is that there will be plenty of room to get in on the move should it start to occur.

Here's the three-hour chart:












© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.