After completing an inverted head and shoulders formation on the 27th of September, USD/CHF has been trading in a fly mode above the tentative uptrend line drawn from the low of the 21st of the month. Yesterday, the pair emerged above the resistance (now turned into support) barrier of 0.9865, to stop today near 0.9925. Bearing in mind that the price structure on the 4-hour chart continues to suggest an uptrend, we will consider the short-term outlook to be positive.
If the bulls are strong enough to overcome the 0.9925 barrier, then we may see them driving the battle towards the 0.9980 key hurdle, which provided strong resistance from the 27th of July until the 17th of August. Now, if that obstacle fails to stop the rate from moving higher and breaks, we may experience extensions towards 1.0035, a resistance marked by the peak of the 17th of July, slightly below the shadow high of the 19th of that month.
However, before the next positive leg, we see a decent chance for a corrective setback, perhaps for the rate to test the 0.9865 level as a support this time. That view is derived by our momentum signs. The RSI shows signs of topping well above its 70 line, while the MACD, although above both its zero and trigger lines, is slowing down.
Even if the 0.9865 barrier does not stop the retreat, we would still stay on the positive side, as the bulls may decide to jump back into the action from near the aforementioned tentative uptrend line. We would like to see a decisive dip below 0.9830 before start considering the potential of a negative reversal. Such a break may initially pave the way for the 0.9780 zone, the break of which could carry more bearish extensions, perhaps towards 0.9740, near the low of the 28th of September.
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