Technical Sentiment:  Bearish

Key Takeaways

• Swiss Franc continues the slide, ZEW-CS Indicator declined 4.7 points to 0.1;
• Yen continues to strengthen for the 3^rd consecutive day;
• CHF/JPY broke below a major support level at 113.

A support break in CHF/JPY is likely to trigger a major slide in the coming days and weeks, as the main downtrend resumes towards 2014’s Low at 111.69.

Technical Analysis

Throughout May and June, the 200-Day Moving Average put a stop to CHF/JPY’s downtrend, ultimately forming a large triangle chart pattern (easily identified by Higher Lows and Lower Highs). Last week the market offered the first Daily bar close below the 200-Day SMA, signaling a break outside the triangle boundaries at the same time. Since Tuesday’s resistance re-test, CHF/JPY has been constantly drifting lower without any retracements and we are now witnessing the break below the major support formed in May-June around the 113.00/10 handle.

Daily Stochastic is also falling in oversold territory, yet we lack any price action signs that would indicate a bounce or consolidation in this area. As a result, we expect CHF/JPY to close below 113.00 at the end of the day and continue the lower in the coming sessions. The first target towards the downside is 112.40, a small pivot zone February 2014. A bounce can be expected in this area, preferably to re-test 113 from below and confirm the level as resistance. The secondary target is located at 111.68, 2014’s Lowest price level.

Even with a return above 113, from a swing configuration perspective the trend will remain bearish, at least as long as CHF/JPY will not exceed the most recent Lower High at 114. Rallies should however be capped much earlier, around 113.40/60, in order to form a fresh Lower High.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets