It stalls, the pullback forms a potential Bull Flag pattern

• USD/CHF breaks out of range, peaks and corrects.
• It can form a Bull Flag pattern with additional upside potential.

USD/CHF is pulling back after breaking out of its multi-week range and rebounding substantially higher on Friday.

Since the breakout, the pair is now in a short-term uptrend, and given that it is a key tenet of technical analysis theory that “the trend is your friend,” the odds favor a higher continuation.

USD/CHF 4 hour chart

USD/CHF has pulled back in recent periods and thus formed what looks like a Bull Flag pattern. They are composed of a pointed rally called a “post” and a draw (“flag square”). If this is the case, then a break above the flag’s 0.8607 high would lead to a rise to around 0.8619 (Fibonacci 61.8% of pole extrapolated above) to the low and around 0.8650 (extrapolated 100% of the pole) as a maximum.

A minimum upside target is also at 0.8617 (August 14 swing low) or 0.8622 (Fibonacci 61.8% extrapolation of previous range high). A really bullish move could reach 0.8675, the 100% extrapolation of the range height.

The Relative Strength Index (RSI) moved into overbought territory when the rally peaked. It has since returned to neutral territory during the price decline. This is a bearish sign and suggests that a deeper correction may develop. Support is at 0.8550 (high since September 12) and even harder support at 0.8540 (top of the range).