close icon

USDCAD’s Sudden, but Natural Plunge Explained

USDCAD’s lost ground this week reminds traders just how quickly things change in the Forex market. A week ago, on Friday 9th, the pair touched 1.2688. Five trading days later, the greenback is down to 1.2450 against the Canadian counterpart for a total loss of 238 pips or 1,88%. Higher inflation is considered as the primary reason for the U.S. dollar weakness not only against the Loonie, but against other major rival currencies, as well.

The bad news is you could hardly see it coming until Wednesday’s CPI report. The good news is that with the help of Elliott Wave analysis, traders could anticipate and prepare for the market’s reaction to such news. The chart below was included in the mid-week updates sent to clients on February 7th, putting them an entire week ahead of USDCAD’s recent developments.(some marks have been removed for this article)

usdcad elliott wave analysis february 7

In the middle of last week, the pair was hovering around 1.2510, but given the bigger picture outlook, we thought the recovery from the low at 1.2248 was supposed to evolve into a five-wave impulse. By February 7th, its fifth wave was still missing, which meant “wave (v) should lift the pair to 1.2600.

On the other hand, the Elliott Wave Principle states that every impulse is followed by a three-wave correction in the opposite direction. So instead of joining the bulls when USDCAD breached 1.2600 the next day, we were already getting ready for a bearish reversal. As the updated chart below shows, it did not take long for the bears to return.

usdcad elliott wave analysis february 16

The pair exceeded 1.2600 and climbed to almost 1.2700 on Friday, but that did not change the wave count in a material way. A week later today, USDCAD trades near 1.2460, allowing the large army of news analysts to explain the plunge with the increased inflation expectations. Elliott Wave analysts, fortunately, do not have to waste time wondering what caused what, because to us, USDCAD’s decline is just a natural three-wave pullback of the preceding impulsive sequence.

Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

You may also like:

Canadian Dollar Weakness Anticipated by Elliott Wave

Canadian dollar bulls had another week to forget, after the USDCAD rate surged from a low of 1.2615 on Monday to nearly 1.2900 so far. There have been two fundamental factors that applied pressure on the Loonie – the decline in crude oil prices and Donald Trump’s intention to impose import tariffs of 10% on…

Read More »

USDCAD and Crude Oil Abandon Negative Correlation

Between 2000 and 2016, USDCAD and crude oil had a negative correlation in 93% of the time. Canada is one of the world’s biggest oil producers and the largest oil supplier to the United States. So, when U.S. demand for oil rises, demand for Canadian dollars rises, as well, thus hurting the USDCAD exchange rate.…

Read More »

EURUSD Sent North by Fibonacci Support

EURUSD bulls had nothing to complain about last week, as the pair rose from 1.2248 to a new 3-year high of 1.2555. It is no secret that the pair has been in an uptrend, especially since it has been rising during the entire 2017. Still, trends always include moves in the opposite direction. The most…

Read More »

USDTRY in a Corrective Pullback Within Uptrend

It has been 10 years since USDTRY bottomed at 1.1488 in January 2008 and started an uptrend that is still in progress. In late November 2017, the exchange rate climbed to as high as 3.9826, but then retreated to 3.7560 as of this writing. A lot of things happened during those 10 years. The world…

Read More »

USDMXN and the Market’s Fractal Nature in Practice

January will be a month to forget for U.S. dollar bulls, who saw the greenback falling sharply against most major rivals. USDMXN is no exception as the pair is down by over 4.7% since the beginning of 2018. On December 26th, 2017, the dollar was hovering around 19.90 against the Mexican Peso. A month later,…

Read More »

EURUSD Weeks Ahead of the German Coalition Talks

It has been a wild week for EURUSD. The pair opened at 1.2027 on Monday, but quickly fell by over 100 pips to 1.1916 on Tuesday, only to resume its rally and reach a new three-year high of 1.2134 as of this writing. The last time the pair traded above the 1.2100 mark was in…

Read More »

EURUSD Starts 2018 On a Tear. Surprised?

2017 has been a great year for EURUSD bulls. During the last twelve months, the pair climbed from as low as 1.0340 to almost 1.2100 and managed to finish the year above the 1.20 mark for the first time since 2014. It was not a sure shot, though, especially during the mid-December dip to below…

Read More »

More analyses