Just like virtually any other currency pair, USDCAD was subject to increased volatility after the U.S. election results came out. The rate registered a low of 1.3263, but swiftly climbed to 1.3524, when it became clear that Donald Trump was going to be the next president of the United States. But even if you could have somehow known how USDCAD was going to behave in case Trump is the president-elect, hardly anyone expected him to actually win. So, in our opinion, there was no news-based way to predict the pair’s path. Fortunately, the Elliott Wave Principle spared us the inconvenience to have to rely on the news. Here is how an Elliott Wave analyst should think, when high volatility is expected.
We included this chart in the USDCAD premium analysis we sent to our clients before the markets opened on November 7th. As visible, while the pair was trading near 1.34, we wanted our clients to be prepared for a possible bearish reversal. Nevertheless, shorting the pair right away was not a good idea so we insisted on waiting for a complete five-wave impulse to the south to form, in order to be able to confirm the reversal. Until then, our clients were told to keep the following alternative count in mind, as well.
The Wave principle suggested that if we do not get an impulsive decline, USDCAD should make only a three-wave pullback in wave 4 of an ending diagonal pattern, before wave 5 up takes the pair to a new multi-month high. That is how Elliott Wave analysis should be conducted. Yes, there is a lot of “ifs”, but those ifs can save traders money by not allowing them to get overconfident in the count too early. The updated chart of USDCAD proves this is the right way of thinking.
The market has been following our alternative scenario step by step so far. The decision to simply wait and see if a five-wave impulse to the downside would occur turned out to be the best one, because it never did. Instead, wave 4 is a clear a-b-c zig-zag, followed by more strength in USDCAD in wave 5. It seems the Wave Principle is valuable, even when it tells you to do nothing, because not losing money is just as important as earning it.
What to expect from now on? What is the bigger picture saying? Is USDCAD going to continue even higher or the resistance near 1.3530 would turn out to be too strong for the bulls to breach? Prepare yourself for whatever is coming. Order your Elliott Wave analysis due out every Monday at our Premium Forecasts section. Stay ahead of the news in any market with the Elliott Wave principle.