Characteristics of USDCHF
USDCHF is another major currency pair that is closely tied to risk appetite and risk aversion in the markets. The price behavior is often affected by it and traders who intend to trade the USDCHF pair should keep these risk sentiment related factors in check.
Volatility is normally low on USDCHF compared to other Fx pairs, usually around 50-60 pips, but can rise significantly in times of risk aversion. USDCHF can rise and fall very fast under specific conditions, for example, either risk aversion or risk appetite taking control in the market. Frequently there will be periods of calm low volatility type of price action with sudden increases in this volatility and then a reversal back to low volatility.
Unlike USDJPY, however, USDCHF is not so closely correlated with US or global stock markets. Instead, it tends to be somewhat more reactive to risk-averse instances driven by European woes rather than crises happening elsewhere.
It is not typical for USDCHF price action to distinctly respect support and resistance zones, although they can work quite well when regarded as wider zones rather than exact levels. Overshoots of these zones are fairly common which can result in occasional fake breakouts. This can make the pair somewhat difficult for trading, but once one gets used to it and practices trading it for a while it’s fairly easy to get in tune with the usual price behavior even on a pair like USDCHF.
Bullish and bearish patterns or trading signals that were generated on high volatility, particularly on higher timeframes such as the daily or weekly, tend to be more significant and should be taken as more important compared to signals generated on very low volatility. In fact, fake-outs are more likely if a breakout occurs on lower than normal volatility.
Trendlines and channels are not the most reliable tool, and in fact are rarely defined clearly on the USDCHF charts. Similarly to horizontal support and resistance zones, sloping trendlines also tend to work more like wider zones rather than specific levels. For these reasons, trendlines and channels on the USDCHF pair should be traded carefully as their existence is not a guarantee that they will be respected by the price.
Round numbers also have a tendency to be respected often, especially on intraday charts where this is even more evident. Hence, round numbers can be regarded as support and resistance levels that can give us important insights into which technical levels we need to pay attention to.
Finally, trading the CHF, one always has to be aware of the possibility of central bank intervention (SNB intervention). Read more on this in the article on EURCHF here.
Now, let’s get into some common entry patterns or signals that appear on USDCHF.
Long trade entries:
USDCHF Daily chart - The 0.9450 support zone was tested 3 times after which USDCHF started an uptrend. There was solid momentum on the last 2 bearish attempts at this support which provided good opportunities to buy. On the right side, the momentum breakout above the 0.9800 resistance zone (marked with the circled area) indicated that momentum will accelerate and USDCHF indeed reached the 1.00 round number level
Short trade entries:
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