The Swiss Cheese Trade

Hello Traders!

The market was quite quiet yesterday with the EURUSD, GBPUSD, and the Yen pairs making bigger consolidations. For today’s article I want to focus on the USDCHF currency pair.

It is not a currency I address often, but the Swissy seems to be in an interesting spot and could provide potential swing trade opportunities to both sides.

So grab your critical thinking cap and let us know in the comment sections down below what you find interesting of this analysis and what you see differently! Continue reading for the full analysis on how to trade the USDCHF.

Day chart

The USDCHF day chart is showing us that the Swissy has been in a decent down trend since the summer of 2012. The currency has been consistently making lower lows and lower highs in a downward sloping trend channel.

Currently price is parked at the top of the trend channel and the currency is close to a decision point. Will the currency break the downward trend channel or will we see a bounce of the trend channel for another leg to the downside? How to trade the USDCHF?

 

The conservative strategy

Of course the safest strategy is to wait for either:

a)      A break of the down channel top trend line +  break of the highs, followed by a hook back to the broken resistance area which should then provide support;

b)      A proof of a respect for the upper trend line of the downward channel followed by a break of the last bottom on the day chart.

Once this has occurred then the currency has clearly chosen its path of least resistance and the safest trading opportunities are ready for the picking.

Trend bounce setup?

Of course some traders might see the down trend channel as a great to enter a short trade on the USDCHF using the resistance levels and the tops as bouncing area for further down side.

This trade setup normally does have value, but in this case I have strong doubts.

The day chart shows us clear double divergence on the currency pair between the 3 bottoms. Due to the divergence the currency could correct higher. A break of the trend line is definitely a very viable option.

Having said that, would I take a chance on a long in this area? No way! The resistance levels are huge and although we did have double day divergences, I am really waiting for a break of the trend line and tops before touching any trades.

4 hour channel

It is not only the day chart which is in a trending mode. The 4 hour chart also has a great channel. This trend direction however is to the upside. The angle of the trend is good.

There is just 1 important obstacle in the continuation of the 4 hour uptrend: the upper day chart down trend channel line. Once that gets broken, this well built up trend channel can continue on its path of destiny.

So we need a bit of patience but once one of the events unfolds, I think I will see a great way how to trade the USDCHF.

If you need some guidance how a trader could approach and setup a long term trading strategy for Forex, then take a look at this great article: “long-term trading strategy“.