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Short-term trading idea FX GBPCHF – looking down: awaiting confirmation of a double top

Trading opportunities on the currency pair: last week, this cross declined by 293 pips to reach 1.3199. This resulted in a double top formation, which will be confirmed should the pair drop below 1.3132. My forecast has the price breaking out of the B-B channel downwards, followed by a further drop to 1.2856 (50.0% of the growth from 1.2220 to 1.3492).

Current situation

In my review on the EURCHF pair, I looked back at the SNB’s decision at the beginning of 2015 to abandon the cap on the EURCHF rate and lower the deposit rate to -0.75%. The pair dropped sharply by 19.6% in response to this, while the GBPCHF pair dropped by 18.8% to hit 1.2611. Since the SNB’s cap related only to the euro, the pound recovered its losses in the space of 10 months. However, after the Brexit vote, the pair dropped to hit a new low of 1.1784.

Fig 1. EURGBP monthly chart. Source: TradingView

On the monthly timeframe, the GBPCHF pair has seen a 45% correction of the downwards movement from 1.5572 to 1.1784. The price is trading within the A-A channel. December’s candlestick closed down. This month, buyers tried to break through 1.35, but were blown off course by the retreat to safe haven assets and the dollar’s decline. In the end they only managed to get as far as 1.3209. This can happen; the franc is that kind of asset. The month isn’t over yet, but the wicks on the daily timeframe over the last 2 months have created a double top formation that is worth our attention.

Fig 2. GBPCHF weekly chart. Source: TradingView

Buyers have thrice attempted to break out of the A-A channel to no avail. Trading on the pound against the franc closed down last week. The rate dropped from 1.3492 to 1.3199 (-293 pips). This has created a double top formation. This formation will receive confirmation once the rate drops below 1.3132. My forecast has the pair exiting the B-B channel with a subsequent drop to 1.2856 (50.0% of the growth from 1.2220 to 1.3492).



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