Volatility is low following Christmas and is expected to remain low until traders around the world return to the trade desks in the new year. But that does not mean those few and dedicated traders at their desks this week can't take advantage of some illiquid market movements. I have been tracking this EUR/CHF daily count for some time now and just recently has it moved into price levels that are of great interest to me.

Back in October, you can begin counting 5 waves down to late November at 1.6306. From there, you can count a clean 3-wave move up to around 1.6720 in early December. Notice legs ‘A’ and ‘ C’ are approximately equal in length. The 1.0 projection was 1.6736 with an actual high of 1.6728. Further, the end of the A-B-C- correction failed at the .786 retracement of the 5-wave move down beginning in October at 1.6713. This is what I consider my bread and butter setup. A symmetrical 3-wave pullback into a deep retracement like the .618 or .786. These are some of the most powerful, low risk setups. As expected, EUR/CHF moved lower to a 1.6533 low, but then found support and began move back up in the last few days.



Now let's move down to the 180-minute chart. You will notice that the move lower from the highlighted resistance zone from the daily can be counted as 5 smaller waves down to 12/16 at 1.6528. After 5 waves down, according to Elliott Wave Principle, you will expect a 3 wave correction back up, which we got in the last week to an approximate 1.6680 high. What do you notice here? On this 3-hour chart, I see an A-B-C correction with legs ‘A’and‘C’ being roughly equal at 1.6675, very close to the deep .786 retracement at 1.6685. Readers have seen me refer to this pattern as the Gartley pattern. In terms of Elliott Wave Principle, it is a text book Wave ‘1’ down with 5-wave subdivisions, followed by a 3-wave correction in Wave ‘2’, which can then be expected to be followed by a big wave ‘3’ down. What's interesting is we are expecting a 3rd wave on the 180-minute chart, as well as a 3rd wave of a larger degree on the daily chart.

Third waves are notoriously the strongest and fastest of the trend waves 1, 3, and 5. So, if my count is correct, then we should see selling pressure quickly come to market while price remains below 1.6730, and ideally below 1.6700. I am short from current levels with stops above 1.6700.



Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

Disclaimer
The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.