Breakout stalls, pullback forms potential Bull Flag pattern

• USD/CHF breaks out of range, peaks and corrects. 
• It may be forming a Bull Flag pattern with further upside potential.  

USD/CHF pulls back after breaking out of its multi-week range and rallying substantially higher on Friday. 

Since breaking out, the pair is now in a short-term uptrend and given it is a key tenet of technical analysis theory that “the trend is your friend” the odds favor a continuation higher. 

USD/CHF 4-hour Chart 

USD/CHF has pulled back over recent periods and in so doing has formed what looks like a Bull Flag pattern. These are composed of a sharp rally called the “pole” and a pullback (the “flag square”). If this is the case then a break above the 0.8607 high of the flag would lead to a rally to around 0.8619 (Fibonacci 61.8% of the pole extrapolated higher) at a minimum and around 0.8650 (100% extrapolation of the pole) as a maximum. 

A minimum upside target also lies at 0.8617 (August 14 swing low), or 0.8622 (Fibonacci 61.8% extrapolation of the height of the prior range higher). A really bullish move could reach 0.8675, the 100% extrapolation of the height of the range. 

The Relative Strength Index (RSI) moved into overbought territory when the breakout rally peaked. It has since come back down into neutral territory during the pullback in price. This is a bearish sign and suggests a deeper correction may develop. Support lies at 0.8550 (September 12 high) and even tougher support at 0.8540 (the top of the range).