Swiss franc bounces to form hammer

The USD/CHF (FOREX:USDCHF) bounced off of the 0.91 handle during Monday’s trading session to form a hammer. This is an area that has previously been resistance, so the fact that we have broken above it, pulled back, and formed a hammer is a pretty significant signal. Additionally, there is a 50-day Exponential Moving Average placed on the chart, through which you can see that it is providing dynamic support at precisely the same spot. Because of this, a lot of traders will be interested in this move and will look to start buying.

On top of that, the Swiss franc looks like it's a little bit vulnerable to the Japanese yen at the moment, and this can be seen as a signal for which one of the "safety currencies" are going to suffer the most. For this reason, it can be suggested that the Swiss franc is particularly vulnerable in general, and a move above the top of this hammer is a reason enough to start buying. Don't get me wrong — I believe that any move in this pair to the upside is going to be more of a grinder than a trend, but recognize that it certainly seems that the upside is probably the more likely direction going forward.

A Backwards Pair

This pair is backwards from what you're used to. What I mean by this is that the U.S. dollar is considered to be "riskier" than the Swiss franc. Granted, that's a relative comparison, and neither one of them is exactly considered to be a seriously "risky asset," but when markets are relatively optimistic, this pair does tend to go higher. Ultimately, stock markets around the world look relatively strong, so I believe that this pair will more than likely go higher.

Even if this pair drops a little bit from here, traders should look for support somewhere near the 0.90 handle, as supportive action below probably extends all the way down to at least that area. On a break of the top of the hammer, the first significant resistance barrier to the upside will likely be the 0.9250 level.

About the Author
Alp Kocak

Alp Kocak has been trading forex since 2003. He writes technical analysis based on Japanese candlesticks and Ichimoku Kinko Hyo and is a senior educator at FX Academy, where he provides trading strategies to traders at all levels.

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