USDCHF: Turns Higher On Hammer & Oversold Condition (Week Ahead).

USDCHF: The pair has halted its broader weakness and triggered a corrective recovery on a hammer candle formation the past week. The implication of this candle formation is that it is a bottom reversal pattern suggesting a temporary bottom is now in place. However, the big challenge is for USDCHF to follow through higher in the new week on the mentioned hammer. In such a case, its Aug 01’2011 high at 0.7952 will be targeted at first with a breach of that level calling for further strength towards its July 13’2011 low at 0.8079. We expect a reversal of roles as resistance to occur at this level and turn the pair back lower in the direction of its long term uptrend. Though its weekly RSI is turning higher, it remains in an oversold zone. Alternatively, the risk to our recovery scenario will be a return below its hammer candle formation bottom at 0.7068. If this occurs, we could see further declines shaping up towards its big psycho level located at the 0.7000 level. This level could provide a strong support on an initial test and turn the pair back up on a corrective recovery. All in all, though printing a hammer and triggering a recovery the past week, USDCHF continues to retain its long term downtrend.