The GBP/CHF pair has been on an absolute rocket ride higher for several months now. I do think that August might be a bit different though. We are most certainly reaching a much overextended market at this point, as the 1.55 level was previous highs during the month of June 2012. With that, I feel that the weekly candle that is closing out the month of July been a shooting star is no coincidence.
If you look at the attached chart, you will see that I have a yellow box attached to it at the 1.50 region. I think that we could pullback all the way to there and still have a nice uptrend. Quite frankly, that would really surprise me at all considering that August tends to be fairly quiet, and this market will more than likely just run out of steam. It doesn’t mean that I’m willing to sell this market, quite the contrary. I believe that we will in fact break out to the upside, but we need to build up enough momentum. We will probably not see any significant momentum in this market until the very end of August, if not the beginning of September.
The pause that refreshes.
There is an old saying on Wall Street that refers to pullbacks as “the pause that refreshes.” That means that the market simply has to draw back a little bit in order to attract more buyers so that we can push much higher. I think that’s what we are getting ready to see, as the move higher has been relatively relentless over the last or five months. If you look at the chart, there hasn’t been much in the way of negativity, and a market that moves this quickly to the upside almost always has to pullback.
Because of this, I will be paying attention to the weekly charts, not the daily ones. I will look for supportive candles below, and be especially interested at the 1.50 region. If I get that supportive candle, I believe that it will be time to start buying this market again. I don’t know that is going to happen in August, again it could be early to middle September before we see that signal, but for me I believe this is going to be an excellent trading opportunity once it happens.
Of course, there is always the alternate scenario, we just simply break above the 1.55 level. I doubt that’s going to happen, but that will obviously be very bullish.