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USD/CHF: Forex Markets Looking for Security

- By Richard A. Cox

Currency markets continue to take a backseat to everything that is being seen in the stock market rally. These types of events do occur with some regularity, but there is the inevitable decline that follows any rally, and this is something that is likely to be seen in forex trading over the next three to six months.

In terms of market security, there are very few forex pairs that invoke this type of positioning better than the dollar/Swiss franc currency pair. But when we look at the actual market activity that is seen in this pair, there are reasons to believe that the paradigm has shifted.

The US Dollar is now being viewed as a safe haven currency in this context, and it is time for forex traders to start accepting this as a reality of the market.

To get a real sense of what is happening in currencies, it is a good idea to look at the actual chart behavior as this is one of the best ways of assessing the underlying trend activity that is actually present in the market.

In this chart history shown below we can see that the USD/CHF has seen a steady downtrend over the last year. Prices are now coming into double to resistance that can be found in the 96.20 area, and this should be viewed as the line in the sand for investors who are looking to establish themselves from the long side or the short side.

Guggenheim CurrencyShares Swiss Trust (FXF)

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To the downside, investors should be looking at the 93.80 area whenever we are looking to establish positions on the short side and any breaks here will likely be the key indicator when we are looking for direction in the trend activity in safe haven currencies. Newer traders should read a forex guide for beginners in order to better understand how support and resistance levels work in technical analysis trading.

Central Indicators

Overall, the price activity in the dollar/Swiss franc will continue to be viewed as a central indicator for what is likely to happen in safe haven assets over the next three to six months. It will be critical for forex traders to monitor these price charts in order to identify what is most likely to happen next during this period.

There are reasons to believe safe haven currencies are at a critical inflection point and with the policy direction at many central banks still uncertain, traders will need to watch for key breaks of support and resistance levels in order to identify the directional strength that is truly present in the market.

Disclosure: The author has no position in any asset mentioned.

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This article first appeared on GuruFocus.