The EURCHF currency pair has been in a downtrend for 4 months.
For the last 20 days, we have seen consolidation on the pair, which is highlighted in the chart by a blue rectangle. Over the past three days, we have seen an unsuccessful attempt to break through the lower edge of the consolidation range, which led to the formation of a bear trap on the EURCHF.
You can read more about Forex price traps in the article “Bull and Bear Traps in the Forex Market“.
On the hourly chart of the pair we see a breakdown of the bottom of the rectangle and an attempt to gain a foothold below support (green zone).
This leads to the formation of a new low on the pair at point 1. But the bears could not gain a foothold and the price rebounded inside the consolidation zone. However, the support zone has become a mirror zone of resistance (green zone). Yesterday, the bears launched another attack, which led to the formation of an even lower low at point 2. All this indicated the continuation of the downward movement on the EURCHF pair.
However, today, buyers seized the initiative and the price increase led to a breakdown of yesterday’s maximum and daily resistance (red horizontal line). Judging by the strong candles, this movement was accompanied by the closing of positions by sellers of the pair and the triggering of stops. Bears in a pair were trapped.
I will not dwell on the reasons for the change in mood on this currency pair. The reduction of risks, the actions of the Central Bank of Switzerland, the less “dovish” position of the ECB members and other factors certainly had an impact on the mood of traders. Let us dwell on technical factors.
Typically, traps are a price model that lead to strong opposing price movements. Thus, we can expect the movement of the EURCHF pair to the upper face of the consolidation zone at a value of 1.09220. The supply zone is also located there, from where the last downward movement on the pair began. And there the upper edge of the downward long-term channel (blue channel) on the pair passes. As a result, we can expect strong resistance to customers in the range of 1.09000-1.09220.
And if the pair passes this resistance zone?
On the 4-hour chart of the pair, we see that in the event of a breakdown of the resistance zone and exit from the downward channel upwards, it will be possible to fix the reversal pattern on EURCHF.
Purchases in this pair become priority and we can expect a move up to the long-term level at the value of 1.09950 (yellow horizontal line) and the demand zone near the value of 1.10500 (pink zone).
Be prudent, observe risk management and trade in a plus.