USDCAD opened at 1.3467 on Monday. Three days later, the pair fell by over 300 pips to as low as 1.3165. According to the media, the reason for the selloff was Bank of Canada’s sudden change of heart towards interest rates. At the start of 2017, the central bank was expected to lower the benchmark interest rate. A few months later, keeping it unchanged became more likely. And now, a rate hike is already on the table for BOC’s next meeting on July 12th, after Senior Deputy Governor Carolyn Wilkins said on Monday that the economy’s recovery is giving policy makers “a reason to be encouraged.”
Does this mean the only way to understand the Forex market’s swings is by constantly following everything officials are saying or doing? We do not think so. In fact, if traders have to wait for an announcement to be made, most of the times they are already late. That is why we use the Elliott Wave Principle, which has demonstrated its ability to put us ahead of the news numerous times. Ten days ago, before the market opened on Monday, June 5th, the following chart was included in our USDCAD premium analysis and sent to subscribers.(some marks have been removed for this article)
USDCAD closed at 1.3484 on Friday, June 2nd, but instead of continuing higher, we thought the pair was headed towards a new low beyond 1.3387. Our bearishness was motivated by three factors, visible on the chart. First, the recovery between 1.3387 and 1.3548 was a textbook example of an a-b-c simple zig-zag correction with an ending diagonal in wave “c”. Second, the resistance of wave (iv) was a good place for the bulls to give up, especially since – third – the 38.2% Fibonacci level was also expected to apply pressure on USDCAD in this same area. So, as long as the invalidation level at 1.3548 was safe, selling USDCAD made sense.
Ten days later, we can see that even though the count was almost invalidated at one point, 1.3548 remained intact. The following selloff turned out to be even bigger than anticipated, but we have no right to complain. So it seems Senior Deputy Governor Carolyn Wilkins’ statement was not the reason for anything. It might have been the trigger, at best, but USDCAD was expected to decline an entire week earlier.