USDCAD climbed to 1.3386 on June 27th, which was its highest level in over a year. But instead of moving on to 1.3400 and above, the bulls stepped aside and allowed the bears to drag the pair to as low as 1.3077 on July 6th. And while this slump can be explained with the surge in the price of crude oil or with Canada’s mixed trade and employment data, our explanation involves the Elliott Wave Principle and the chart below. (some marks have been removed for this article)
This chart was included in the USDCAD analysis sent to subscribers before the market opened on Monday, June 25th. According to the theory, market prices form repetitive patterns. Five-wave patterns, called impulses, develop in the direction of the trend, while three-wave patterns, called corrections or retracements, follow in the opposite direction.
A good illustration of this principle is given by the five-wave rally from 1.2249 to 1.3125, labeled 1-2-3-4-5, which precedes a three-wave decline, marked a-b-c. This 5-3 wave cycle held the key to staying ahead of USDCAD’s current plunge. The impulsive recovery from 1.2859 was supposed to evolve into a complete impulse pattern, which meant that once wave “v” climbs to a new swing high, a bearish reversal for the beginning of a three-wave pullback should be expected. The rising trend line drawn through the last four swing lows looked like a natural bearish target. Two weeks later today, the updated chart of USDCAD below shows how things went.
Wave “v” completed the impulsive sequence at 1.3386 on June 27th, which then gave the start of a 309-pip selloff to 1.3077 so far. The same type of pattern, which caused USDCAD’s weakness to 1.2528 in mid-April, led to another decline now. Fortunately, Elliott Wave analysis warned us about it again.
What will USDCAD bring this week? That is the subject of discussion in the next premium analysis due out later TODAY! If you want to master the Elliott Wave principle yourself, our eBook Elliott Wave guide is here to help you!