EURCHF Bounces Strongly After a Gap Down. A Real Bottom?
For the latter part of 2011, the CHF has been beating up any currency inside the G8 and taking absolutely no prisoners. Just look at these facts;
-All time low printed in the last month for EURCHF
-All time low printed against GBP in last 30 days
-Clocked in an all time low against the USD (well – maybe this is not that special since even the Uruguayan Peso is gaining against the USD. When a country of barely 3+ million people has their currency appreciate 33% against the largest economy of the world, its simply not good and reeks of internal problems, but I digress)
-Printed a 2yr low against the AUD, one of the strongest G8 countries – impressive
To say the least, the CHF has been annihilating its competition in 2011 so anyone who went long CHF in 2011 did well. Oh yeah, not to forget, we suggested shorting the GBP against the CHF at the beginning of this year, and also stated the CHF would likely gain immensely against the pack this year so hopefully you followed up on this.
Moving on, so now that the swissie has gained against every one of these countries listed above, what now? Is it a real bounce?
Well, consider some of the following points;
-the CHF against pretty much everything but the Thai Baht gapped down or gained against the entire G8 block, thus, starting the week with strength, has suddenly reversed course and posted the following results;
-2 days of losses against the EUR, USD, GBP, AUD and NZD
-on all those pairs, gained more the 2nd day then the 1st day, suggesting an increase of buying pressure following a day of gains which is odd since they’ve all been in a downtrend for 4months now
-all gained against the CHF after a gapping down against it.
All of this points to the fact this bounce is likely legit with many of the currencies postingoutside days against the CHF and following that up with continued buying.
With that being said, we feel strongly about not selling these pairs till minimally the price reaches the 20ema. In fact, we’d even go further to say let the price advance (maybe even close above the 20ema) and then let it do what it needs to, but when it closes (on a daily chart) back down below the 20ema, start selling again and targeting the previous lows with stops just above the 20ema.
This is called a with trend failure signal and generally offers a good chance to get back in with the trend which we feel should continue. However, if buying continues after a daily close above the 20ema and the candles are increasing in size, then step back and wait for at least a touch on the 20ema on the weekly time compression before getting back in.
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