Pound-Swiss Franc Rate Meets Major Trendline as Uptrend Starts to Take Root
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- Uptrend meets first major hurdle in form of trendline
- Break above would be very bullish
The Pound-to-Swiss Franc exchange rate is trading at 1.2843 at the time of writing, after rising 0.3% at the start of the week as markets continued to cut back on expectations for a 'no deal' Brexit taking place in March.
The pair has now reached an interesting technical crossroads just under the level of the downsloping trendline from the April 2018 highs.
If GBP/CHF can successfully break above the trendline it will open the way higher and suggest a much more bullish outlook, yet, in truth, some major obstacles lie in the way, and the bullish forecast is conditional on a break clearly above them.
Assuming GBP/CHF can successfully break above these hurdles, however, we see a reasonable chance of a follow-through up to a target at 1.3250, generated using the length of the move prior to the trendline (X) and extrapolating it higher (Y).
Such a move would be dependent on a break above the 200-day moving average (MA) at 1.2940 and the trendline from the April highs. A break above the 1.3025 level would probably be adequate to confirm the rise.
It is possible but not probable such a break might happen in the week ahead. It could take longer and will probably require a dramatic shift in fundamentals to provide the backdraught necessary to propel the exchange rate higher.
Such a shift is possible, however, given the pace of change in Brexit negotiations. All it would require is consensus on a Brexit deal of some kind for Sterling to shoot higher.
This is especially true in the case of GBP/CHF because of the asymmetric nature of each the pair's fundamentals. The Pound would appreciate on the news of a Brexit resolution whereas the Franc would weaken on the same news because it is a safe-haven asset which appreciates on 'bad' - not 'good' - news.
One further technical characteristic to note is that momentum has been strong during the rally off of the early January lows and this further recommends growth.
The RSI momentum indicator has just moved out of overbought on the daily chart which suggests a temporary pull-back in price may be on the horizon.
The strong momentum on the weekly chart, however, indicates the uptrend could very well continue one the barrier of the trendline has been overcome.
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