Potential pullback in a new uptrend

• USD/CHF formed a new uptrend after reversing from the August 29 low.
• The RSI has broken out of overbought, indicating a risk of a pullback developing within the uptrend.

USD/CHF has recovered since bottoming out at the August 29 lows. The pair triggered the uptrend with a Three White Soldiers Japanese candlestick pattern immediately after the August 29 bottom. This happens when three similarly sized green candlesticks follow a new low.

USD/CHF has probably now started a new uptrend and since “the trend is your friend”, the odds are more in favor of the upside.

USD/CHF 4 Hour Chart

There is a risk that USD/CHF may pull back temporarily before continuing higher, however, as the Relative Strength Index (RSI) momentum indicator has just left overbought territory. This provides a signal that the trend is likely to correct or reverse.

RSI’s overbought exit was accompanied by the formation of a Japanese Hanging Man candlestick pattern (shaded rectangle). The current candle is red and looks like it will likely end as a down candle, adding confirmation for the Hanged Man.

If a correction occurs, it will likely pull back to support at either 0.8503 or 0.8485.

However, the dominant short-term uptrend is likely to resume and take over the price again. A break above 0.8541 (August 23 high) would see resistance at 0.8557, followed by 0.8617 if the uptrend proves strong.