GBPCHF rally following the neckline break
Early April saw GBPCHF find support at the weekly Ichimoku Cloud base at 1.3416, which was also the 50% Fibonacci pullback level of the 1.1264 to 1.5569 move, which led to the pair moving higher. The rally we currently find ourselves in shows no signs of slowing, but we are fast approaching several upside barriers. The first of these barriers is our bespoke resistance at 1.4471, followed by the 50% Fibonacci pullback of 1.4491 from the 1.5569 to 1.3412 move.
Looking to the daily chart now, yesterday saw the impulse breakout of a bullish reverse head and shoulders pattern. The measured move target of the formation is located at 1.5011, however the pair faces some upside resistance before reaching this target.
As previously mentioned, the first resistance level is the 50% Fibonacci pullback level at 1.4491 and we currently trade just below here. The next barrier is at 1.4600 as this level has been pivotal over recent years acting as both a support and resistance barrier. This is closely followed by an AB=CD target at 1.4614.
A Fibonacci confluence area can be seen from 1.4705 to 1.4745 which would be the proceeding upside barrier/ target following a break through the AB=CD target.
The medium-term bias remains bullish, but, despite the bullish reverse head and shoulders formation, we remain cautious on immediate upside potential. The risk/ reward ratio would also be poor to call a buy around the current levels, therefore we prefer to set longs on a dip.
The Marabuzo level from May 18 is located at 1.4299 which coincides nicely with the previous resistance area of 1.4275 to 1.4300. This is therefore our ideal area to set longs.
Management and risk description
The stop for this trade will be set below the neckline support which comes in around 1.4170. The initial target will be set just below the AB=CD formation target which is seen at 1.4614, with the second target being set just in front of the 161.8% Fibonacci extension level of 1.4705. These parameters would therefore set us up for a risk/ reward ratio of 2:1 at the first target.
Entry: buy GBP/CHF at 1.4310.
Stop: a break of 1.4160.
Target: 1.4610 and 1.4700.
Time horizon: medium term.
— Edited by Martin O'Rourke
Non-independent investment research disclaimer applies. Read more