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I’m going to begin the day today on the US Dollar versus the Swiss Frank [USDCHF]. Starting here on the Daily Chart, it’s not too hard to see that this currency pair has been in a downtrend for quite some time. We go all the way back to the top of the chart, back into the 0.9800s in May of this year. We began the downtrend at the highest highs. We made a little bit of a dip, a rally back here into the 0.9700s again in June, then a dip and a little bit of a shorter rally. Another dip, a little bit of climb, and then finally the last leg of the downtrend pushing all the way down into the mid-0.8800s. But again, not too hard to see that we have been in a downtrend.
And I define a downtrend as having lower highs and lower lows, because the price has been moving down. Then we can add trend lines in here. Trend lines are a visual representation of the trend. They’re not really the trend. The trend is the price action. The trend line is just a tool we use to represent that trend. And in this case, I have three different incarnations of a trend line and three different interpretations of this downtrend. A clear downtrend, but three different interpretations using trend lines.
First off, let’s look at the longer one. The black trend line. That comes from the highest high here into the mid-0.9400s. That’s back into September 5th. We see it reaching the high point there at the top of the black trend line. I’ve connected it with this high right here inside the purple-shaded area. In fact, let me go ahead and put a little black X there because that’s going to be an important pivot area for all of the trend lines that we see here on the chart. So, we could see the black trend line connecting with the high to the high here where the black X is. And the market is still a little ways away from that. We could see it’s still a little ways. It would have to rise up into this pink-shaded area, into the mid-0.9000s before it touched that black trend line.
Then a little bit of a shorter trend line. The blue trend line. And a little bit shorter trend line. The red trend line. It’s going to take us to go down to the 4-Hour Chart before we could really look at where those are connected, but we could see where they start at. They start here, right there where that black X is and the purple-shaded area. So, three different incarnations of the trend lines here, but for the most part we have been in a downtrend, and over the recent days we have found support into the mid-0.8800s. A little bit of a pullback and a period right now of indecision. Are we going to continue the upward movement or are we going to turn back down in the direction of the trend?
Let’s go ahead and zoom it in a little bit here on the Daily Chart just so we could get a closer view here of the Daily Chart. We could see where those trend lines come from. Again, there’s the black trend line here. You could see where it’s connected at the very top of the chart up here, or the very top of that trend. And again, right here where the black X is. If I click on that, you could see where the connection dots are there with that black trend line, and it’s a little farther away.
I’ve also added Fibonacci here. And Fibonacci is another tool that we can use to find retracement levels. Not only can we use the trend line; we can use the Fibonacci levels. And I’ve taken fib from that same black X, where the black X is. That same high down to the current low. And very interesting. When you do that, we find the .236 fib at 0.8930, right on top of that green-shaded area. The yellow-shaded area is where the .382 fib sits, and that’s right at 0.8990. It’s right in the middle of that yellow-shaded area and, incidentally, sits right there where the red trend line is now helping us identify resistance.
Then, just above that, into the 50% level of that same downtrend, 50% sits at 0.9040, and that happens to sit right at the bottom of that pink-shaded area and of course where the blue trend line connects to the current market. So, very interesting there. The 50%, .382, .236 helping us identify of course our current support, but the next two resistance, which happen to coincide with the blue and the red trend line.
Now let’s go ahead, now that we’ve looked at that, and take this down to the 4-Hour Chart because I really want to dig into the red and the blue trend line and discover where they come from, because there’s two different interpretations of the same leg of the trend. I’m looking at the same high. There’s the black X. If I could squeeze it in, there’s our black X up here at the top left-hand side of the chart. We’re looking at the same high with both the blue and the red trend line – the highest high there, but I’ve interpreted a little bit differently. The red trend line actually cuts through this high right here, where the orange-shaded area is. Cuts through that high and connects with this high right here. If I click on the trend line, you could see the connection dots with the highest high, then the one here in the middle, and then the connection dot right here. And that’s where the market has tested here into the upper 0.9000s, towards the 0.9100-level. There at the red trend line and then began that next fall.
So, interesting there. That’s a little bit of a different interpretation of the trend line, where it cuts through this area right here. We don’t really see it as a true trend line connecting with the highs. The blue trend line, however, I’ve connected it with the actual highs. It doesn’t cut through any candlesticks like the red trend line does. I’ve connected it with the last two, or the first two connecting highs here up at the top left-hand side of the trend and it doesn’t cut through any part of the candlesticks within that trend. And in doing that, we see a little bit of a different interpretation again, where it raises that trend line up there closer to the purple-shaded area.
So, the question with all of this is: are we going to find resistance at the yellow zone and the red trend line and turn it back around in the direction of the downtrend or are we going to finally eventually break through there and challenge back to the blue trend line and the pink-shaded area and the 50% retracement level back into the 0.9040-level? So, definitely two different interpretations of the trend.
Well, it would be easy to say now that it’s going to find resistance at the yellow zone, because we’ve already seen it, so I would expect that’s the same again today. As long as it hold underneath the yellow zone, which is historical resistance and support, the .382 Fibonacci level and where the red trend line comes into place. As long as it holds underneath there, I would expect resistance and the possibility of going back down. If we see a push or a breakthrough that yellow zone break through, basically, 0.9000. If it breaks through that yellow zone, through the red trend line, through the .382 fib, your next resistance is clearly defined now into the blue trend line, pink-shaded area, and 50% retracement level of that same previous downtrend.
So, there are your two resistance. The yellow and pink. Well, today being very close to a bank holiday and markets closing early, I would expect that that yellow zone will likely be our resistance for today. It’s going to take some pretty decent movement to get it through there and to challenge back into the pink zone. Now that we’ve identified our resistance, of course our support is the next thing we want to look at. Over the past couple of days, we’ve already seen support here into the 0.8930-level. That, again, happens to be the .236 fib of this previous downtrend. High to low that we see here on this chart.
.236 fib – 0.8930. Top of the green zone. Not only that. If I scoot the chart back just a little bit, you could see historical resistance here in the green zone and support far left-hand side of the chart. That support on the far left of the chart in the green zone. The resistance here in the middle. And now identifying some support right now for the USDCHF. So let’s go ahead and put an arrow here. As long as it stays within or above that green zone and the .236 and the historical support and resistance, potential to continue to find support there and go back up and challenge the trend lines. Underneath the green-shaded area, underneath that .236 fib, we’re likely challenging the lowest lows that we see here on the chart, all the way back down into the blue-shaded area and into the 0.8870s.
Bank flow levels over the past few days have confirmed support right now, so definitely looking at the bank flow levels, the green-shaded area, and the .236 fib, identifying this as support. So, if you’re looking to sell it, selling into the yellow or the pink zone becomes an opportunity or the break under the green zone. If you’re looking to buy this, a test of the green zone or maybe even the blue zone becomes your best lowest risk, highest rewards opportunities to buy the USDCHF today.
