Key Points:
- Long-term Elliot wave remains in place.
- Leg four is still retracing but could be about to pick up the pace.
- The pair could end up at the 1.3664 mark or higher.
The loonie’s long-term forecast remains in play this week but we will now need to see some more downside action to keep the Elliot wave intact. However, given Stephen Poloz’s recent attempts to jawbone the pair by intimating that some of Trump’s impact has been included in the BoC’s calculus, we could be about to see the CAD drag the pair lower moving forward.
Overall, the USD/CAD is expected to be bullish over the next number of months and it could reach towards the 1.3664 mark and beyond. This being said, the pair’s ascent is taking the form of an Elliot wave which means we should see the pair remain in decline for the remained of the year. In fact, only recently the third leg of the wave completed and the retracement back to support began, bringing the loonie back towards the central tendency of the Schiff pitchfork that constrains the wave pattern.
Looking at a handful of other technical readings reveals that whilst the reversal has been less severe than one would normally expect, this could be about to change. Firstly, the parabolic SAR reading is on the cusp of reversing its bias from bullish to bearish. As a result, the bears should be able to truly wrest control of the pair from the bulls in the coming sessions which offers some significant downside potential.
Secondly, the loonie has trended below a rather robust long-term zone of support which opens it up to extend its losses substantially moving forward. However, it is worth noting that the pair may not be able to sustain a decline all the way back to the long-term ascending trend line and could instead have a somewhat shallower fourth leg. Largely, this is the result of the intersection of a support produced by the pitchfork and the 100 day EMA which could generate some dynamic support of its own.
Regardless of where the loonie ends the fourth leg of its Elliot wave, it should ultimately finish up back at around the 1.3664 mark or higher. Depending on the fundamentals released over the coming weeks, the USD/CAD should recover to this price by around mid-February at its current trajectory. However, Trump still poses a challenge to this forecast as he may not be able to continue fuelling the greenback’s resurgence over the next month or two. Consequently, keep an eye on this pair moving ahead as it is sure to have some interesting developments moving ahead.