Technical Sentiment: Bearish

Key Takeaways

• Canadian New Housing Price Index came out at 0.3%, reactions slightly muted;
• Rising Wedge breaks down, price still has to make a Lower Low;
• CAD/CHF eyes 0.8500, followed by 0.8400 if a bearish break can be sustained.

Our initial indications that a large CAD/CHF top might be in place have received additional confirmations this week. Following a resistance bounce on Monday, price declined on Wednesday afternoon below the support trendline of a rising wedge, hinting more losses may be in store for the pair if sellers can gain momentum.

Technical Analysis

Most currency pairs have confirmed major swing reversals during the second week of October and Canadian Dollar vs. Swiss Pound is no exception. Dissipating selling pressure in the Euro currency helped CHF gain momentum early in the week. Combined with an obvious growing weakness in the Canadian Dollar, CAD/CHF appears to be the perfect candidate for short positions for the foreseeable medium-term.

CAD/CHF is currently priced around 0.8555 halfway through 10/9 U.S. trading session, with price action showing a slow and steady consolidation beneath the support trendline (0.8577). While the Rising Wedge pattern has been broken towards the downside, the most recent Higher Low at 0.8530 held as support on Wednesday and Thursday, which leaves the bullish swing configuration intact. A break below 0.8530 would invalidate this configuration, allowing bears to put more pressure on the pair and extend losses towards 0.8400.

Since price action remains choppy and trading ranges have considerably decreased in size, this bearish CAD/CHF scenario will be disproved only by a rally above 0.8635, in order to price in a fresh higher high.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets