The Fed tried to sound tough last week when it held rates steady, but traders didn’t buy the threats. Coupled with the stabilization in the price of crude oil, this only gave the decline in USDCAD additional momentum. The pair was hovering around 1.3650 at the end of May. Less than three weeks later, it dipped below 1.3180. The good news is that Elliott Wave analysis helped us predict this selloff nearly a month earlier.
The chart above was included in our May 22nd Elliott Wave Pro analysis of USDCAD. It revealed that the decline from 1.3862 to 1.3301 has taken a familiar shape. It looked like a five-wave impulse, labeled i-ii-iii-iv-v. This means that the following recovery must be part of the three-wave correction which follows every impulse. Waves ‘a’ and ‘b’ seemed to be in place already, so it made sense to expect more upside in wave ‘c’.
Then, the bearish 5-3 wave cycle would be complete and it would be time for the downtrend to resume. This is the conclusion we reached just by looking at a chart, without knowing what the Fed or the Bank of Canada was going to do. Turns out we didn’t need to know.
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Wave ‘c’ developed as an ending diagonal with a truncated fifth wave, so USDCAD didn’t even exceed the top of wave ‘a’. As it often happens after an ending diagonal, the anticipated bearish reversal was swift and sharp. On June 16th, 2023, the pair fell to 1.3178, a level it last visited nine months ago, in September, 2022.
The bearish reversal was already in place at the end of May. The Bank of Canada raised rates on June 7th, while the Fed abstained from an 11th rate hike in a row on June 14th. This comes to show once again that the habit of the market is not to follow, but to anticipate. Those who wait for the news are doomed to always be behind the curve. Elliott Wave analysis, on the other hand, gives us a chance to stay ahead of it.
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