Ultimately balanced, if still marginally optimistic

• USD/CHF has corrected back in recent days, raising the question of whether it could reverse lower.
• It has not yet fallen far enough to confidently indicate a trend reversal and a resumption of the uptrend is still possible.

USD/CHF reversed course after posting a new low on August 5th and started trending higher. The pair has started a sequence of higher highs and higher lows on the 4-hour chart, suggesting that it is in a short-term uptrend. It peaked at 0.8749 on August 15. It has since been corrected back. It hit a new low of 0.8616 on August 19.

USD/CHF 4 hour chart

The question is, is the correction just a pullback within the dominant uptrend or the start of a deeper move down?

Although USD/CHF is showing bearish signs, it is probably still slightly bullish overall, although not without risk. The pair has crossed an uptrend line from the August 4 lows and below the 100 and 50 period simple moving averages – and it looks quite bearish on the daily chart (not shown). These are all negative signs, but the short-term trend remains intact. More downside is still needed to signal a reversal lower.

A close below the 0.8618 support level, for example, would provide confirmation of a short-term trend reversal and the start of a new downtrend. Such a move could be expected to continue falling to a downside target at 0.8560.

Alternatively, the pair could still recover. The pullback from the August 15 high could be characterized as an ABC correction of the uptrend. If so, the uptrend is likely to resume.

The formation of a bullish reversal candlestick pattern at the current lows could provide evidence that the pair was about to resume its uptrend. Or a retracement above the 100 SMA at 0.8688 would help confirm.

The pair would be expected to rise again to the August 15 high at 0.8749. A break above this would likely extend the trend to resistance at 0.8776.