USD/CHF Analysis: Doors Open For Dec. 2016 Highs?

The solid rally from the Sep. 8 low of 0.9421 ran out of steam above 1.00 this month. The spot fell to a low of 0.9846 earlier this week before regaining some poise to trade around 0.9930 levels. The Intermarket analysis and the USD/CHF chart indicate a potential for a rally to Dec. 2016 high of 1.0344.

Bull flag on US-Swiss 10-year yield differential

• The rally in the USD/CHF from the Sept. low of 0.9421 was backed by the rise or widening of the US-Swiss 10-year yield spread/differential from 221 basis points to 249 basis points.
• On the chart above, we see a bull flag pattern. An upside break, i.e. a move above 249 basis points would signal a continuation of the rally from 221 basis points. The spread could then rally to 277 to 280 basis points.
• Such a move would help USD/CHF rise to the Dec. 2016 high of 1.0344.

Monthly chart

The above chart shows:

• The trendline sloping upwards from the Sep. 2011 low and May. 2014 low is proving a tough nut to crack. The trendline resistance is seen at 1.0011.
• However, the trendline hurdle is likely to fall soon, courtesy of the bullish price action - for four straight months (June, July, August & September), the bears failed to keep the pair below the monthly 50-MA. The failure finally yielded a rally to 1.00 in October. Also, the chart shows a bullish 50-MA and 100-MA crossover.

Daily chart

The chart above shows:

• Potential golden crossover (bullish 50-day MA and 200-day MA crossover).
• 5-day MA and 10-day MA have adopted a bearish bias.
• 100-day has bottomed out and has adopted a bullish bias.

View

• Despite the pullback from the recent highs above 1.00 to 0.9846, the broader outlook still remains bullish as suggested by the bullish monthly chart. Also, the golden crossover on the daily chart is likely to work in favor of the bulls (and not as a contrarian indicator in the short-term). Moreover, after the crossover, all three major averages - 50-MA, 100-MA and 200-MA - would be aligned in favor of the bulls.
• However, only a break above 1.00 + bull flag breakout on the US-Swiss 10-year yield spread would revive the bull run and shall open up upside towards 1.0344.
• On the downside, only a break below 0.9750 (descending trendline support) would abort the bullish view.