Last week, USDCAD crashed from 1.2909 to as low as 1.2680. This week, the pair initially fell to 1.2623, but quickly reversed to the north again and now appears determined to regain all of last week’s losses. As of this writing, it trades near 1.2870. While the upbeat ADP report on the US private sector employment and Bank of Canada’s rate hike talks could be seen as the reason for the U.S. dollar’s rally against the Canadian counterpart, Elliott Wave analysis managed to prepare us for it much earlier. Here is how:
The chart above was included in our mid-week update, sent to clients on Wednesday, December 6th. Technical analysis in general and Elliott Wave analysis in particular, are pattern recognition techniques. This chart was accompanied by the following text: “USDCAD seems to have drawn a complete a)-b)-c) flat correction. It seems to have terminated at 1.2623, so a stop-loss order at this level is appropriate. Higher levels should be expected as long as it holds.”
A flat correction is just like any other type of correction, meaning that once it is over, the larger trend resumes. Here, since USDCAD was rising prior to the flat correction, it made sense to expect more strength after it. Instead of joining the bears near 1.27, we thought the odds were in the bulls’ favor. The updated chart of USDCAD below shows how the situation developed.
The pair initially fell to 1.2653, but it never crossed the key level of 1.2623. From then on, all traders had to do was wait for the news to make the bulls realize it was their time to take the wheel. So the next time you find yourself waiting for an external factor to trigger a market move, do not forget to check the charts. The market might have already left a message for you there.