USD/CHF surged last Thursday, breaking above the 0.9490 resistance (now turned into support) barrier, and also above the neckline of a possible inverted head and shoulders formation. Then, the rate hit resistance at 0.9535 and retreated to test the neckline as a support this time. The completion of the pattern, combined with the fact that the rate has been trading within an upside channel since mid-February, makes us confident that the short-term outlook is positive, and that further upside may be looming.
If the bulls manage to take the reins near current levels, we would expect them to challenge once again the 0.9535 barrier, the break of which could set the stage for more bullish extensions, perhaps towards our next resistance of 0.9600.
Looking at our short-term oscillators though, we see the risk of further setback before, and if, the bulls decide to shoot again. The RSI drifted lower after topping slightly above 70, while the MACD, although positive, has topped as well and crossed below its trigger line.
A dip back below the H&S neckline and the 0.9490 support could confirm the case for further retreat and may pave the way for the 0.9440 level. However, even in this event, the pair would still be within the aforementioned upside channel and thus, we would still consider the short-term outlook to be somewhat positive.
We would like to see a clear break below 0.9420 before we start examining the case that the outlook may have turned to the downside. Such a move could carry extensions towards the 0.9365 area.
