Elliott Wave Analysis of the EUR/CHF Pair

10/15/2009 12:01 am EST

Focus: FOREX

As the single currency rebounded after trading above recent support at 1.5073, retaining our view for further consolidation above key support at 1.5006 and another rise to 1.5235 and then 1.5300 is likely, but break of resistance at 1.5383 is needed to signal the wave 3 has commenced for retest of 1.5448, probably in late Q4.

Our preferred count is that the decline from 1.6828 (Nov. 10 2007) to 1.4300 is treated as D leg of a larger degree wave (B) and E leg of this triangle wave (B) is in progress with a leg ended at 1.5880, then b leg at 1.4577, the 5-wave c is taking place with wave i ended at 1.5448, prolonged wave ii has ended at 1.5006. Under this count, the wave iii has began with minor wave (i) of iii formed a top at 1.5383 and support at 1.5006 should hold and bring another rally. Above 1.5383 would be the first sign that the up move has resumed, but it is necessary to see a break of 1.5448 resistance to confirm and extend to 1.5600, then towards 1.5880 resistance (this level is also just above the 100% projection of wave i from 1.4577 measured from wave ii bottom at 1.5006 at 1.5877).

On the downside, below 1.5073 would risk test of indicated key support at 1.5006, but only a drop below 1.5000/06 would suggest the wave 2 is still unfolding, then fall to 1.4909 (61.8% Fibonacci retracement of 1.4577 to 1.5448) would follow but downside would be limited to 1.4800 and support at 1.4577 should remain intact.

To recap the selloff from 1.6828 (10 Nov 2007), the decline from there is now labeled as a-b-c three-legged move with a: 1.5326, b: 1.6370 (July 2008) and then c leg as well as the wave D ended at 1.4300 (Oct 2008), followed by this E leg which is still in progress and break of 1.5880 resistance would bring the c leg of E to 1.6157 (100% of a leg from b) and later towards 1.6370, however, upside would be limited to 1.6500 and price should stay well below resistance at 1.6828 (wave C top).

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The long-term downtrend started from 1.9626 (Apr 1985) to 1.4166 (Sep 1995) is treated as wave (A) with A:1.6285 (Dec 1987), B: 1.9342 (May 1992) and C: 1.4166, then wave (B) is unfolding with A: 1.7147 (Feb 1997), B: 1.4398 (Sep 2001), C: 1.6828 (Nov 2007) and despite the brief break below B leg trough to 1.4300, the strong rebound from there suggests price is still consolidating with medium term broad trading band, hence we are treating this fall as the D leg of a large triangle wave (B) from 1.4166. So resistance at 1.6828 should continue to cap upside and bring another selloff later. Once price drops below 1.4300 support, this would confirm the wave (B) has ended and downtrend would resume for retest of 1.4166, then 1.4000

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By the Staff at ActionForex.com