Technical Sentiment: Bearish
Key Takeaways
The Japanese Yen was the leading currency in the Asian and European sessions, as Core Consumer Prices rose 3.4% in May from a year earlier and Unemployment Rate dropped to 3.5%. Now that CHF/JPY dipped for a second time to test the 200-Day Moving Average, it remains to be seen if traders can break outside the consolidation area.
Technical Analysis
Since the initial double bottom pattern formed in May and the rejection off 114.96, CHF/JPY has been trading in an increasingly tighter range. The pair is being squeezed between two large moving averages on two different timeframes: resistance is marked by the 200 Simple Moving Average on the 4H chart, while the 200-Day Moving Average is being respected as support. Although the recent Yen strengthening is favoring a bearish break at the moment, price action confirmation is crucial for a break-out scenario such as this one.
For a downtrend continuation play it is imperative we see CHF/JPY closing below 114.40. A 4H bar close below this level may suffice then a Daily close will seal the deal. This will immediately open the way for 4th test of 113.02/05 area. Stochastic has yet to reach oversold territory on the 4H and Daily time frames, indicating there is plenty of leg room for a dip. On a break below 113.02, the downtrend will fully resume with targets in the 111.60/80 area.
Free Reports:
Bullish scenarios should be considered only on a break above 114.24. A rally above this cluster (most recent Lower High, the 200 SMA on the 4H chart and 61.8% Fibonacci retracement from 114.96 down to 113.05) will continue all the way up to 114.96-115, with a longer term possibility of reaching 116 for a complete retracement of the downtrend that began in March.
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
