CHF/JPY Buyers Face Resistance at Neckline of Inverse Head and Shoulders

Market Overview:

On Thursday, the yen weakened against the Swiss franc following comments from Japan’s Prime Minister Shigeru Ishiba. He confirmed that the country’s economy is not yet ready for a rate hike after discussions with Bank of Japan Governor Kazuo Ueda. This dovish stance contrasts sharply with Switzerland’s more hawkish monetary policy, where higher interest rates continue to boost the franc’s appeal as a safe-haven asset. This interest rate differential between the two currencies has been a primary driver of the franc’s gains against the yen in recent weeks.

Technical Analysis:

In the daily chart, CHF/JPY is forming an inverse head and shoulders pattern, signaling a potential reversal from the recent downtrend. This bullish reversal pattern, often considered one of the strongest technical formations, suggests that momentum could shift from bearish to bullish.

Currently, the pair is testing a critical resistance level at 172.524, which aligns with the neckline of the inverse head and shoulders. A confirmed breakout above this neckline could trigger further upside movement, targeting 173.673, 174.273, and 175.134. If bullish momentum continues, the pair could eventually reach 176.748, which represents a key longer-term target.

Alternative Scenario:

However, if the pair fails to break above the neckline at 172.524 and reverses lower, support at 170.412 will be critical for maintaining bullish hopes. A break below this level would expose CHF/JPY to further downside, with 168.300 acting as a key support level. A sustained decline below this zone could invalidate the bullish inverse head and shoulders pattern, signaling a potential return to the downtrend.

Technical Indicators Confirmation:

In the current analysis of CHF/JPY, several technical indicators align with the overall bullish outlook, offering confirmation for a potential continuation of the upward move.

The RSI for CHF/JPY is currently in bullish territory, indicating that buying momentum is strong. The RSI is not yet overbought, which means there is still room for the pair to climb further before reaching a point where a pullback might occur.

The MACD is also in bullish territory, with the MACD line positioned above the signal line, indicating upward momentum.

The price is currently trading above key moving averages (such as the 34-period and 100-period moving averages), which are often used to confirm the strength of a trend. Additionally, the moving averages are also sloping upwards, which is another positive signal for the bulls.

Key Levels Overview:

• Resistance Levels:
  • Resistance 1: 172.524
  • Resistance 2: 173.673
  • Resistance 3: 174.273
  • Resistance 4: 175.134
  • Resistance 5: 176.748
• Current Price: 172.510
• Support Levels:
  • Support 1: 170.412
  • Support 2: 168.300

Key Events to Watch:

Japan’s service sector PMI data, released on Thursday, came in weaker than expected, contributing to the yen’s decline against major currencies. On the Swiss front, investors are closely watching inflation data and the monthly unemployment rate set to be released on Friday. With Switzerland’s economy benefiting from a low unemployment rate and manageable inflation, the franc could remain supported in the long term, particularly if the labor market shows continued resilience.

Conclusion:

CHF/JPY is positioned at a critical technical juncture as it approaches the neckline of a powerful inverse head and shoulders pattern. A breakout above 172.524 would pave the way for further gains, targeting 173.673 and beyond. However, failure to break this resistance could see the pair retreat to supports at 170.412 and 168.300. Investors should monitor Swiss unemployment data and developments from Japan, as these factors could significantly impact the pair’s next move.