The CHFJPY has rallied after a breakdown of it rectangular chart pattern as visible in this D1 chart. The CHFJPY has been trading within its rectangular chart pattern and only pierced it to the downside once in order to touch its ascending 50 DMA. This currency pair now trades at its horizontal resistance level and we expect it to correct back down to its horizontal support level which is also enforced by its ascending 50 DMA.
MACD has just completed a bullish centerline crossover, but we expect this to reverse and classify it as a fake crossover. The pending correction should see a bearish centerline crossover and lower lows for the histogram which already formed much lower highs during the advance. RSI is trading in overbought territory and we expect a breakdown to fuel the rally.
We recommend a short position at 106.25 with a potential second entry level at 107.75. We also recommend a stop buy order at 107.00 in order to hedge the initial short position and before adding new short positions to this trade.
Traders who wish to exit this trade at a loss are advised to place their stop loss order at 107.25. We will not use a stop loss order and execute this trade as recommended. Place your take profit order at 103.75.
Here are the reasons why we call the CHFJPY currency pair lower
- CHFJPY is trading inside of its rectangular chart pattern and currently pauses at its horizontal resistance level
- MACD indicates weak momentum during the rally and the histogram formed a much lower high and performed a fake crossover
- RSI is trading in overbought territory
- Profit taking in order to realize profits at solid resistance levels
- New institutional short positions by swing traders