Ten days ago, on June 1st, we published an article, called “USD/CAD Ready For A Weak Week?”. As always, its title was inspired by the wave structure of the analyzed instrument. The wave structure of USD/CAD looked like a five-wave impulse to the upside, so, according to the Elliott Wave Principle, we were expecting a three-wave decline. The next chart shows that forecast as it was ten days ago.
As visible, there was a clear 1-2-3-4-5 sequence to the north between 1.1919 and 1.2560. The theory says that every five waves are followed by a three-wave correction in the opposite direction. In addition, wave 4 was a triangle – a pattern, known to precede the last wave of the larger trend. That is why we assumed that once wave 5 is over, we should expect a significant pull-back. Here is what happened:
The anticipated correction started almost immediately. Today, USD/CAD is trading close to 1.2300, which is more than 260 pips lower. The more important thing is that this plunge is in three waves a-b-c, so the 5-3 Elliott Wave cycle seems complete. If this count is correct, we should prepare for more USD/CAD strength from now on. Wave 3/C is supposed to take the exchange rate above the top of wave 1/A. Levels around 1.26 or higher should not be surprising.