My trading system has now generated a sell signal on USDCHF.
Here are the trade specs:
Entry now at .9864
Limit: .9779
Stop: 1.0032
I’m prepared to add leverage at .9920 and .9976 if price should reach those levels, as this seems a good pair to build a short position in for a ride down to the .9500 handle.
This pair, on a momentum basis, is heavily overbought on every chart from 15M out to the Daily. As shown in the 6-hour chart, this pair seems to have formed nearly a full five waves up and I’m now anticipating a correction of at least 50%, which gives a medium-term target of .9478.
The hourly chart suggests that this pair might need a period of consolidation in a fourth wave, however, followed by a new high. Because wave ii retraced nearly all of wave i, I am expecting that the wave v high will extend only slightly (30 to 50 pips) above the wave iii high, which appears to currently be in formation. Due to the strong bearish momentum, it is entirely possible that wave v will be truncated and fail to meet the current price, hence my readiness to enter this trade at the present time.
I will be looking for a clear bullish divergence on the hourly chart to exit this trade, unless my limit is hit first.
The chart below suggests some of the reasons I doubt USDCHF will be able to reach parity in its current rally. Normally, impulsive waves stay within their “Elliott channel”, which is drawn by connecting the bottoms of the second and fourth waves and then adding a parallel line that crosses the top of the third wave. In this case, the fifth sub-wave of wave iii has fallen outside its Elliott channel, and to me that signals extreme weakness in the ensuing waves iv and v. Often in times of such market weakness, wave v is “truncated”, meaning it fails to surpass the wave iii high.
I am not ruling out entirely a new high in wave v, but if it does occur, I doubt it will surpass wave iii by more than 50 pips. As a result, aggressive traders may wish to target the Fibonacci resistance at .9535 by setting their limit at .9550.
The corrective move labeled as wave iv in the charts above now seems over and I think price is now making an assault on .9900 before turning lower to the Fibonacci support at .9535. The wave iv correction has satisfied my minimum expectations for time and currently price is testing the upper trendline shown here.
For reasons I mentioned last week, I expect this fifth wave rally to be a disappointment for the bulls. Standard wave ratios and relationships lead me to anticipate the rally burning out somewhere between .9920 and .9976.
My stop and limit levels are unchanged from last week.
