Like EURUSD and other EUR pairs, EURCHF bottomed in late September and has been steadily rising since then. The relentless rally surprised most traders, as the situation in the autumn was quite starkly different for Europe. The continent was facing painfully expensive energy in the gas and electricity markets as the winter was approaching. However, as the autumn progressed, it became clear that the winter was going to be a warm one, and at the same time, news about a China reopening from Covid lockdowns supercharged optimism in Europe.

However, the EUR-optimism is now reaching levels that are consistent with a growing economy and almost no energy crisis. The reality is different. Gas and electricity across European countries remain significantly above historical averages (at least 2-4 times higher), and thus Europe is not back to normal and can't be with the current situation. With the optimism now clearly taking EUR positioning into extended "long" territory, the scope for a move lower in the euro is growing. Pairs like EURCHF and EURUSD could soon reverse some of the recent upward momentum.

EURCHF is testing the resistance trendline of the two-year downward channel (the bear trend started in spring 2021) around the 1.00 area. The upward move has stalled, but a reversal is not yet evident. Both the weekly and daily charts show EURCHF is consolidating after the big push higher in early January.

The bullish leg of the past 4 months is well-defined by a support line, which now stands just slightly below the current levels. It is actually also concurring with the 200-day (red) and 55-day (blue) moving averages around the 0.99 zone. This is now a clear breakout point that should trigger a bigger move to the downside.

Given the clear reactions at the support line each time it was touched since October, a bearish breakout is likely to be real and result in a capitulation of the bulls, thus leading EURCHF back lower.

A bearish break of 0.99 is the trigger for a short entry. The next support is located at the 0.97 zone. 
 

Trade Plan

Entry:

• Look for a bearish break of the support line (0.99 zone);
• Short entry on confirmed bearish breakout

Stop:

• Above breakout point, 
• or above the most recent swing high (currently around 1.01)

Target:

• 1st - 0.97
• 2nd - 0.95