Executive Summary
- USDCHF’s bearish pattern appears incomplete
- Wave relationships exist between .8350 – .8422 to complete wave 3
- Rallies are likely to be temporary until wave 5 is completed to the downside
How Much Lower Could USDCHF Fall?
The cost of Swiss chocolate may become more expensive in the future as the Swiss Franc has gained 8% in the past four months.
Earlier in August, the flash crash in equities spilled over into other markets like USDCHF as the pair fell hard (and Swiss Franc strengthened) to reach a low of .8432 on August 5.
This level was not surprising to us as we forecasted on July 3 that “USDCHF is poised to decline to .8670 and possibly .8442.”
We were anticipating a third wave decline and that was the driver behind such a strong move. The overall pattern is incomplete and we are anticipating USDCHF to continue its downtrend. This time, the downtrends may not be as severe.
The Elliott wave models suggest the August 5 low was a third wave. The degree of trend for the third wave is under review.
Regardless, we are anticipating USDCHF to continue softening in the coming days, possibly reaching .8350 – .8422 to finish off a fifth wave.
The Elliott wave count pictured above would place this bump lower as wave ((v)) of 3. This model implies a rally in wave 4 followed by another decline in wave 5.
The relative strength index divergence is indicative of a fifth wave so this immediate decline is not likely to be a runaway train lower.
Bottom Line
The current wave 3 appears incomplete to the downside and likely travels lower. Wave relationships exist near .8350 – .8422 to complete wave ((v)) of 3. It is possible USDCHF continues lower, but the wave count would be ripe for a short-term bullish reversal.
If USDCHF does rally, it may carry higher to .8600 – .8700 and is considered wave 4 already underway.
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