Update: GBP/CHF To Face Test At 1.7069.

Last updated 11/5/2009 6:46 PM EST (GMT -5) 0 Comments - Add your comment

Bradley W. Gareiss

Technical Analyst, GFT

Below we are slightly updating the GBP/CHF trade that we posted a couple of weeks ago. The trade is mainly the same, but we are posting it again so no one loses track of it. There is also a further level of resistance forming that increases the probability of the trade being successful (assuming the trade completes as drawn).

The GBP/CHF has been in a downtrend for nearly 3 months. However, the pair has begun to move sideways and a moderate rise could lead to a bearish butterfly forming on the GBP/CHF 8hr Chart. There is now a shorter term ABCD pattern forming within the CD leg of the bearish butterfly as well. Additionally, the trade would enter just above the 50% Fibonacci retracement of YZ on the Daily Chart. I really like butterfly patterns that consist of two 161.8% extensions because we know fairly quickly whether we are wrong or not. Assuming the trade completes as drawn, this is an above average setup.

We are looking to sell the GBP/CHF if it rises to 1.7069 (Point D). Point D is located at the convergence of the following levels:

We will now jump into possible red flags that could invalidate this trade. First, we need to watch how quickly CD completes. If the pair rises with long bars, don't take the trade. If the pair comes within 30 pips of reaching our entry, does not enter, and reaches T1 before entering, the trade is invalid. The trade is also invalid if the pair falls below 1.6724 before hitting our entry.

To recap, we will look to sell the GBP/CHF at 1.7069 with our stop placed at 1.7212. Our initial profit targets are 1.6854 (38.2% of CD) and 1.6676 (61.8% of CD).

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  • Daily Chart - Trade would enter at 50% of YZ.
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  • 8hr Chart - Bearish butterfly; sell at 1.7069.

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