EURCHF stalls below resistance cluster ahead of this week's ECB meeting

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Since teasing markets with a break above the infamous 1.20 level, EURCHF opted to plunge over 5% from the highs with some sort of vengeance. But now prices have stabilised below a cluster of resistance, we’re closely watching the cross for a potential short.

We can see on the daily chart how bearish momentum increased as it crashed from the highs. We knew range expansion would be coming after it compressed below 1.20, but its magnitude clearly pulled the rug from under bullish feet.

Still, after accelerating further away from the lower Keltner band a volatile rebound seemed the more likely. And on the eighth day beneath it, the inevitable rebound ensued and a volatile low was printed at 1.1368. Since prices have now stabilised beneath a resistance cluster we’re looking for an opportunity to trade EUR/CHF back to that low.

We’ve highlighted a decent zone of resistance between 1.1651/87 which comprises of the 1.1651 low, a 50% Fibonacci level and its 200-day average. What makes the zone more compelling is how Monday’s bearish hammer respected the 200-day average and 1.1651 low. Furthermore, the 20-day average has curled beneath the 200-day average whilst also acting as resistance. Put together, there are several technical levels above which are acting as a headwind for a bullish breakout.

Still, with tomorrow’s ECB meeting Euro crosses are vulnerable to volatility in both directions. So, we’d prefer to wait for the event to pass and for bearish momentum to return before getting involved. And it’s worth noting what happened beneath the 1.20 highs, as it serves as a warning as to what can happen if you jump the gun with a view, only to see it reverse sharply against you. As always, confirmation is key.

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