Ten days ago, on June 1st, we published an article, called “USDCAD Ready For A Weak Week?”. As always, its title was inspired by the wave structure of the analyzed instrument. The wave structure of USD CAD looked like a five-wave impulse to the upside, so, according to the Elliott Wave Principle, we were expecting a three-wave decline. The next chart shows that forecast as it was ten days ago.
As visible, there was a clear 1-2-3-4-5 sequence to the north between 1.1919 and 1.2560. The theory says that every five waves are followed by a three-wave correction in the opposite direction. In addition, wave 4 was a triangle – a pattern, known to precede the last wave of the larger trend. That is why we assumed that once wave 5 is over, we should expect a significant pull-back. Here is what happened:
The anticipated correction started almost immediately. Today, USDCAD is trading close to 1.2300, which is more than 260 pips lower. The more important thing is that this plunge is in three waves a-b-c, so the 5-3 Elliott Wave cycle seems complete. If this count is correct, we should prepare for more USD CAD strength from now on. Wave 3/C is supposed to take the exchange rate above the top of wave 1/A. Levels around 1.26 or higher should not be surprising.
