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USDCHF Consolidating at Support After a Bullish Divergence

Ahead of the NFP report in the United States, the USDCHF pair consolidates after breaking dynamic resistance. Multiple technical factors point to a bullish continuation – but for now, it just sits on previous resistance turned into support.

The CHF did what it was supposed to do in a crisis – it got stronger. Ever since the pandemic reached the Western world, it dropped a big figure, losing steam from parity to the 0.90 level.

At the same time, the Swiss National Bank (SNB), one of the most active central banks in the world, was busy diversifying its balance by acquiring foreign assets. To pay for them in a different currency, it had to sell CHF.

Therefore, despite constant selling from the SNB, the CHF appreciated. However, we should not discount the SNB’s intervention as useless. It did manage to influence the CHF rate if we only consider what the EURUSD did in the same period. While the EURUSD advanced 1.5 thousand pips, the decline in the USDCHF pair was more moderate.

The U.S. data this week points to a mixed picture ahead of the NFP report. On the one hand, the ADP managed to put four consecutive months of adding jobs. On the other hand, the employment component in both the ISM Manufacturing and Non-Manufacturing show a sector that is still in contraction.

USDCHF Technical Picture

The technical analysis picture looks bullish. The price made a series of lower lows and lower highs, typical in bearish trends.

However, the last push lower was not confirmed by the RSI. When this happens, the price is said to form a bullish divergence. Next, the focus shifts to the bounce and the last higher low. When the price breaks it, it is supposed to continue in the same direction.

It did not break it yet. But all the way to the downside the price action resembles a falling wedge pattern. To trade it to the upside, bulls might want to wait for a break above 0.9160 for an entry with a stop at 0.91 and target a 1:2 risk-reward ratio.

USDCHF Forecast