Since the confirmation of the global recession in March 2008, the pair has entered an upside wave that was considered the XA leg of a Harmonic Pattern, until this wave ended in November 2008, when the FOMC rate cuts was at its utmost; the AB was completed by the end of 2008 and the BC wave started which ended in March 2009 when equities and commodities started the rally and the dollar slumped, and the CD leg was completed in November 2009.
USDCHF - Annual Technical Analysis for 2010
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With the end of the downside wave that took the form of a CD leg, the pair entered a bullish direction, which is the expected direction after the end of the CD leg, and now this wave is expected to prevail and correct between 38.2% to 61.8% of the CD leg; the targets for this expected upside move reside at 1.0695 and then 1.1180, yet for the pair to acquire the second target it should consolidate above the mentioned 38.2% correction.
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Classically, the pair was capable of recording two consecutive tops, as seen on the above provided chart, and this pattern?s targets were not fully acquired, yet only 60% of the target was set. This provides the possibility for the current upside wave to be caused by the Harmonic Pattern and is a re-test to the neckline for the shown pattern. The neckline is around 1.0695 and it matches with one of the harmonic pattern?s targets; this reflects the potential for the pair to acquire the harmonic pattern?s target and then initiate a new downside wave that targets new bottoms at 0.9915.
Finally, assessing the pair according Elliot Theory, we can see that at the bottom recorded at 0.9915 the pair completed the third wave (from the IM shown in pink) which originally is a part of the third IM higher ranking wave (shown in blue) and therefore the expectations are for an upside correction targeting the completion of the fourth wave, shown in pink, and the suggested correction target are at 1.0690 and then 1.0940. After that the pair will enter a strong downside wave targeting areas below 0.9915 and might extend towards 0.9395 which is the 161.8% correction for the second wave shown in blue, followed by 0.8815 which is the 161.8% from the first wave.
Despite that the current upside move is considered merely correctional, we should take into consideration that stability above 1.1200 will invalidate the downside scenario expected for 2010. Consolidating above this level will cause a drastic reversal in the trend and the pair will enter a strong upside wave that will take it back near the top levels of 2008.
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