USD/CHF (daily chart) as of Thursday (10/27/2011) has extended its fall substantially after breaking the neckline of a well-formed head-and-shoulders reversal pattern. Thursday’s price action saw the pair drop more than 200 pips to hit a 7-week low just below 0.8600, approaching key support in the 0.8550 price region. 0.8550 represents a key level that has been respected several times in the past both as support and as resistance. With price approaching such low levels, bearish momentum off the reversal pattern could well extend further to the downside. In the event of a breakdown below 0.8550, price action could begin targeting further downside around the next key support level below, in the 0.8275 price region.
(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)
James Chen, CTA, CMT
Director of Technical Research and Education