Swiss / Yen Could Plunge

The deep declines in the Yen crosses have been a big story so far in 2008.  However, one cross that has held up is the CHFJPY.  Both currencies strengthen as market participants become risk averse, therefore the Swiss Franc and the Yen tend to move in tandem.  But markets are dynamic and change quickly; the CHFJPY might be the next Yen cross to take the plunge.

Over the last 20 years, 101 has proved formidable as resistance on multiple occasions.  Specifically, major tops have formed in January 1987, August 1992, and October 1998.  These tops led to declines of no less than 2,000 pips (2,270 to be exact).  A similar top may be in place at the July 2007 high of 101.84.         

In August 2007, the CHFJPY broke below a 7 year support line.  The rally that ensued over the next 3 months tested the trendline as resistance.  With former support now providing resistance, the CHFJPY may be ready to plunge.  

This is a close up view of the down-up sequence since July 2007.  The decline from 101.85 to 92.15 is only in 3 waves but could be wave A of a flat correction.  The 3 wave advance is a classic B wave.  Risk is tight at 101.85 and targets for a few months out are the 100% and 161.8% extensions of 101.85-92.15/100.72 at 91.02 and 85.02.  A new high (above 101.85) is not out of the question before a plunge occurs; but this is why we use stops.  

Tell us what you think about this report: contact the strategist about the article at jsaettele@dailyfx.com