Trade Idea: USD/CHF May be Ready to Fly

The USD is set to gain on the CHF. The risk reversal rate is at the level where the USDCHF has historically former significant bottoms. The pair closed above a 2 month trendline yesterday and both the intermediate term and short term wave structures favor the upside with well-defined risk.

The risk reversal rate is at its lowest level since the USDCHF bottomed in late 2006. This indicates that options traders are the most bearish they have been on the USDCHF since that time. As contrarians, we know that the majority are wrong at the turn, so a bullish bias is warranted. Longer term traders should be bullish against 1.1993. Also, the USDCHF closed above its 2 month trendline yesterday.

This is the wave count, going back to Early December 2006. The 5 wave rally from 1.1877 sets the bullish tone. The double zigzag correction is just that, a correction. The next move of consequence should be above the top of what is either wave 1 of A (1.2571) in either wave 3 or wave C.

This is the short term wave structure. A clear 5 wave rally from 1.2080 is visible, thus price must remain above this price for the bullish structure to remain intact. The 2nd wave correction consists of 3 waves (a-b-c) and is sharp, a guideline in Elliott. We are looking to position ourselves for the wave 3 ride towards the 100% and 161.8% extensions of 1.2080-1.2195/1.2080 at 1.2253 and 1.2323.