Pound / Franc: January Lows Loom Large

Image © Albert Czyzewski, Adobe Images

- GBP/CHF is in an entrenched downtrend

- January lows now a possible target

- Global risk appetite main driver of Franc

The Pound-to-Franc exchange rate is trading at around 1.2367 at the time of writing, down half a percent on the same point one week ago, and the charts seem to suggest more losses for the pair over the next few days.

The 4-hour chart shows the pair declining in a step sequence of lower lows and lower highs, and given the old adage that ‘the trend is your friend’ we expect the established downtrend to continue to a fresh downside target at 1.2250, at the January 3 lows.

The RSI momentum indicator is converging with price which means it is rising while prices are falling. It is a sign of a slowdown in bearish momentum and signals the potential for a pull-back.

However, so strong is the downtrend that even if there is a pull-back, it probably won't last very long before the bear trend resumes.

The 4-hour chart is used to analyse the short-term trend, which is defined as encompassing the next 5 trading days.

The daily chart shows the pair in a clearly established downtrend which is expected to continue to a target at 1.2250, January 3 lows over the medium-term.

The January lows are a formidable support area where we expect the pair to bounce - or at the very least stall.

There is a risk it could bounce up to around the 1.2400 level of the December lows. Eventually, however, the downtrend will probably resume and take the pair even lower.

The RSI momentum indicator on the daily chart is also converging with price, suggesting the pair could pull-back, although the convergence is mild and the correction is likely to be temporary.

The daily chart gives us an indication of the medium-term outlook which includes the next couple of weeks to a month.

The weekly chart shows the strong downtrend continuing lower albeit at a modified pace. This trend will probably extend.

The pair is likely to find a hard floor at the January 3 lows, from which it is expected to bounce and go sideways for a time, however, given the intact downtrend, we see a continuation lower as most likely thereafter, to a subsequent target at 1.2000.

We use the weekly chart to analyse the long-term trend, defined as the next several months.

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