Last week’s rally in the EUR CHF came to a halt after reaching its highest level since May 20. The subsequent sell-off led to the formation of a weekly closing price reversal top. This is a strong indication that a short-term top has been formed and that a near-term sell-off is likely.
A weekly closing price reversal top often leads to the start of a 2 to 3 week break of at least 50% of the last rally. In this case, a 2 to 3 week break is likely, however, because of the Swiss intervention and the fixing of the Euro/Swiss relationship at 1.20, traders shouldn’t expect a break beyond this level.
The recent flat trade and the reversal top are two signs that buyers may be giving up on the long side or at least lightening up positions. Even though a support base is likely to form near the 1.20 fix level, there may not be enough interest in the long side to trigger a strong rally from there. Given the current scenario in the Euro Zone, it appears that Euro/Swiss traders are not expecting too much to come out of the nextSummitscheduled for Wednesday. It looks like it is going to take a massive shift in investor sentiment to drive this currency pair higher. Look for another week of sideways to lower trading.
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