By: Mike Kulej
The Swiss Franc continues to be a currency of choice. Opinions vary whether it is treated as a safe haven or a long-term investment, but it getting stronger. Just on Wednesday, the CHF reached new all time extremes against number of major currencies.
One of them was the Euro. The EUR/CHF pair dropped to another historical low at 1.2051, before recovering on Thursday. From this point, however, additional downside may be limited and a sizeable correction within the downtrend could be next. At least according to some of the technicals.
Present situation is similar to the major price swing late last year. The daily chart of the EUR/CHF established a main trend line and then accelerated sharply, just like it is happening now. Both moves are also similar in size. What might be important currently is the proximity of the 1.2000 handle – an extremely important psychological support.
The DeMarker indicator suggests that the price is due for a correction. Unlike other oscillators( compared to the RSI here) this one should be interpreted not by how oversold/overbought the reading is, but rather by how long it stays in these extreme conditions. As we can see, it has been longer now than before the correction last year.
To be sure, so far the price action itself has not created a compelling case for the end of trend. There is no indication of a bottoming pattern, not even a strongly bullish candlestick. Not yet, at least. On balance, however, there is enough evidence to suggest that the EUR/CHF has a limited downside potential now.