GBP/CHF surged more than 800 pips through January, before consolidating and creating a bullish flag. notes Matt Weller.
With most Asian markets on holiday for the Lunar New Year celebration, Aussie traders on the sideline ahead of tonight’s monetary policy decision, and many U.S. traders out of the office for the informal post-Super-Bowl-Monday-“Holiday,” we’ve seen a predictably slow start to this week’s trade in the FX market.
Beyond a slight lean toward strength in the U.S. dollar today, the only other noteworthy development was a short-lived spiked in the British pound. Toward the end of today’s European session, sterling spiked by around 50 pips against all of its major rivals, seemingly without explanation. The move has since completely reversed itself, leaving an unsightly long wick on the daily candles.
Today’s short-lived excitement aside, the pound/Swiss cross (GBP/CHF) is drawing plenty of eyeballs from a slightly longer-term perspective. The pair surged more than 800 pips from trough to peak through January, before spending the last week consolidating at the top of that rally in a comparatively tight range.
This price action has created a textbook bullish flag pattern, suggesting that buyers are still in control and foreshadowing a strong rally if we see GBP/CHF break above its resistance zone in the 1.3100 area, where we also saw the pair top out in October and November of last year (see chart).
Source: TradingView, FOREX.com
In terms of catalysts for a potential breakout, the most notable data release will be Thursday’s Bank of England meeting, so readers may want to revisit GBP/CHF if the BOE strikes a hawkish tone later this week.
