From the desk of Tom Bruni @brunicharting
Over the past five years or so, USD/CHF has been laying the foundation for a structural breakout, a structural breakout that looks to be in its early stages as 2016 begins. Before I get into the price action, I think it’s important to understand the context that this move is occurring within.
From a sentiment perspective, my data suggests that commercial hedger positioning and public sentiment are both at neutral levels. Sentiment is only important at extremes, which I don’t see currently, therefore this will be the extent to which I discuss it in this post. In terms of seasonality, my data suggests that over the past thirty years, January-March has been the worst three month period of the year for Swiss Franc performance. The combination of these factors provides a slight tailwind for USD/CHF longs in the early months of the year, but overall, this market continues to trade within the context of a neutral backdrop.
From a structural perspective, the weekly chart shows the decade-plus long downtrend that this market has been in since prices peaked in 2001. In 2011, prices accelerated to the downside, quickly reversed, and have since been trading within a range of 0.86-1.00. The four and a half year base that formed allowed momentum to improve, the 200 week moving average to flatten out and begin rising, and for prices to test the downtrend line from the 2003 highs multiple times. The development of the conditions which support a sustainable rally allowed for prices to break out late last year, retest the breakout, and continue higher. If this breakout holds, the first structural target lies near 1.13-1.14 at prior support and the 38.2% retracement of the 2001-2011 decline, which represents roughly 12% upside from current prices.