USDCHF was looking pretty good just two weeks ago, when it almost reached parity, climbing to as high as 0.9998 on October 25th. Unfortunately, the bulls must be very disappointed now, after the pair crashed to 0.9678 last Friday. The question now is how to determine if this a dip to buy or the start of a larger selloff. The method we use to stay ahead of the news is called the Elliott Wave Principle. According to it, the daily chart of USDCHF, shown below, is sending a pretty clear message.
The daily chart of USDCHF allows us to examine the entire price action since the November 2015 top at 1.0328. The choppy and overlapping decline to 0.9444 is a diagonal. It could have been an ending diagonal, but USDCHF’s development after it suggests it is much more likely to be a leading diagonal instead. That is because the recovery from 0.9444 to 0.9998 is a clear (a)-(b)-(c) zig-zag correction with a triangle in wave (b). In addition, this wave B zig-zag has retraced exactly to the 61.8% Fibonacci level of the diagonal in wave A. The sharp plunge from this level strongly suggests USDCHF has regained negative bias and could be expected to continue to the south from now on. Eventually, these junctures should lead the pair to the levels beneath 0.9444, because wave C is supposed to breach the low of wave A.