The June Swiss Franc is trading in a tight range this morning following Tuesday’s closing price reversal top. Today’s inside range is a combination of uncertainty and impending volatility. The lack of follow-through to the downside after the previous day’s sell-off indicates that the first move down may have been initiated by profit-takers after a prolonged rally in terms of price and time. Follow-through selling will be a strong sign that new shorts may be pressuring the market.
The U.S. Dollar began gaining ground against the Swiss Franc on Tuesday after Federal Reserve Chairman Ben Bernanke in a speech failed to hint at another round of quantitative easing. Bernanke’s admission that the economy has been surprisingly slow seemed to seal the deal by suggesting that another round of quantitative easing is highly unlikely. This notion undercut demand for risky assets, sending traders into the Greenback.
After hitting a new all-time higher versus the Dollar, the June Swiss Franc reversed course, sending weak longs scrambling for the exit as position-squaring and profit-taking dominated the trade. This morning, bearish traders were expecting to see a confirmation of the top with follow-through selling; however, clearer heads seem to have prevailed as traders backed away from playing the short-side.
Technically, the closing price reversal top is often indicative of the start of a major move. In this case, the move that may be developing is to the short-side. While the chart pattern itself doesn’t indicate an actual change in trend like a violation of a swing chart bottom does, it does usually indicate that sentiment may be shifting.
Once traders confirm the reversal top with a follow-through trade through Tuesday’s low at 1.1925, the first noticeable move is usually a 3-day break or a 50% retracement of the last rally. If this assessment holds true, then traders can expect to see a correction into 1.1601 over the near-term.
