How to Use Support and Resistance for Identifying Decision Spots in Forex

Is the USDCHF attempting to break to higher levels or is it only a rise to fall?

Many Forex traders are contemplating the Swissy’s next move. Here is my view.

11- 12- 2014 usdchf

  • The USDCHF down trend has lasted long and thousands of pips (price was 1.83 back in 2001 for instance compare to 0.96 today, and has fallen a lot prior to 2001 as well);
  • Considering the one directional movement I would not be surprised to see a reversal back to mean trade setup. A first indication of a reversal to the mean occurred in August 2011 when price made a strong bullish momentum from 0.70 to 0.96 in 5 months time;
  • The first targets for such a reversal to the mean setup are the -27.2 and -61.8 Fibonacci targets. Whether one of the targets has been hit depends on whether a trader uses the weekly Fib (blue) or monthly (Fib);
  • Price could be making an attempt to push towards the other targets such as the -61.8 (blue) and the -27.2 and -61.8 (magenta) OR price could fail to break the top and correct to lower Fibonacci levels such as the 38.2 (blue) and 50 (magenta).

Ultimately the currency will need to break support (green trend line) or resistance (top & trend line) to show its true long-term intent and potential direction. In the image below you will see where the (wide) open spaces can be found.

11- 12- 2014 usdchf 2

My own bias leans towards the bullish break out scenario. The number one argument supporting this bias is the bullish swing (where the Fibonacci levels are placed). Although price did reach one of the weekly Fibonacci targets, both monthly targets and weekly -61.8 are still open. Of course, at the end of the day I am letting price decide and following it wherever it wants to go. My decision spots for price are the top (red) and support trend line (green).

11- 12- 2014 usdchf 3

The GBPCHF provided us with a 120 win recently. Check out this post to read that trade setup in more detail (click here). Price has not only reached our target (61.8 Fib) but in fact extended all the way to the 78.6 Fib (blue) and tested the resistance trend line (red).

The GBPCHF has the same long-term analysis as the USDCHF: a long time downtrend followed by bullish momentum and recent consolidation. The recent choppiness has occurred after an uptrend on the daily chart, which means that there are more layers of support visible than resistance. The deciding factor will be whether price can break through any of them. Price would need to break below long-term support (magenta lines) for a reversal or above recent resistance (red) and top (light red) for an uptrend continuation. As always the best advice is to wait for price to make a decision and then follow it, instead of making a decision too early and hoping for the best.

Thanks for tuning in and sharing this post.

If you want to add your own analysis to it, please do not hesitate to drop a note below!

Happy Hunting!

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