Monday, January 3, 2011

USDCHF—Year-end Evaluation

The USD performed poorly against the Swissy as the year wound down. In fact, every currency performs poorly against the Swissy and has done so for dozens of years—look at any monthly chart of EURCHF, GBPCHF, etc.

There is a seasonal tendency for the USD to rally against the Swissy in January. A look at prices since 1982 shows that the pair has gone up 20 times and down 9 times. 29 years is not enough to make a definitive statement but there does appear to be some seasonal tendency.

Another issue is that the pair sunk to new lows in a low liquidity environment. This calls into question the validity of the move technically. There were bullish moves in October and November. These carried the pair to a high of 1.006. Currently, though, the pair is below the October low. That's significant because the October low formed a hammer on the monthly chart.

There is positive divergence on the daily, weekly, and monthly charts. The significance is that new momentum lows aren't accompanying new price lows. The pair remains oversold on the daily chart. Other than the divergence, there is no clear sign that a bottom is in place. However, nothing continues straight down. One would expect some sort of rally. The question is, does one wait and short a rally or try a long position?

In favor of waiting for a rally is the triangle on the weekly and monthly charts. Since the triangle is always a continuation pattern from an Elliott Wave viewpoint and often is from traditional pattern analysis, the probability is that there will be additional moves down. Looking at the monthly chart below, one can see five touches of the triangle. A potential downside target for EW triangles is .9072. Psychological support is at .9200. It could go lower. Thus, a rally would provide a nice short. A potential rally zone is between .9448 and .9593. This encompasses a few highs and lows from November and December as well as the 10 daily SMA (at .9511) and the .382 retracement of the move down from 1.0066 to .9301.

Any long position would have a stop below the .9301 low as well as trailing stops up to the resistance zone. I have additional research to do on this pair before taking a position one way or the other.

Here's the monthly chart and a gloomy picture it is:

© 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.

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