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- GBP/CHF in downtrend and likely to expend
- December crash lows possibly in cross-hairs
- Global risk appetite still main driver of Franc
The Pound-to-Franc exchange rate is trading at 1.2490 at the time of writing as a volatile week for the pair continues. Despite a mid-week rebound the dominant bear trend had reasserted itself on Thursday and pushed the exchange rate to new low, with more losses expected over the next few days.
The 4-hour chart above shows the pair capitulating during the last session and breaking to new lows.
Given the old adage that ‘the trend is your friend’ we expect the established downtrend to extend further to a fresh downside target at 1.2420, at the January 10 lows.
It is even possible it could fall lower to the next bearish target at 1.2380 and the December 10 lows within the next week.
The 4 hour chart is used to analyse the short-term trend, which is defined as that encompassing the next 5 trading days.
The daily chart reveals the full extend of the clearly established downtrend. The recent break below the June 18 lows has reinvigorated this downtrend which we now see continuing.
The RSI momentum indicator in the bottom panel has formed a multiple bottom pattern (circled) which appears to suggest momentum is ripe for a move higher, however, it is also a sign that it has now worked off its oversold extreme and has room for further downside before it gets oversold again.
Oversold is defined as below 30 on RSI. When momentum falls below this level it is an indication of heightened risks the exchange rate could stall in its downtrend and either go sideways or bounce.
It is not in oversold yet, however, providing scope for more downside.
The forecast in the medium-term is for more downside to a target at 1.2380 followed possibly by 1.2250 at the January 3rd lows.
The daily chart gives us an indication of the medium-term outlook which includes the next couple of weeks to a month.
The weekly chart shows the strong downtrend continuing lower albeit at a modified pace. This trend will probably extend.
The pair is likely to find a hard floor if it touches down on the January 3 lows, and then it is likely to bounce and goe sideways within the time period of the weekly chart, which we use to analyse the long-term trend, defined as the next several months.
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