Last Friday, USD/CAD climbed to 1.3247 and despite this week’s attempts to reach this level again, the best the bulls were capable of was 1.3242. Instead of continuing higher after two weeks of steady gains from 1.2822, the pair lost over 200 pips and is currently trading near 1.3040.
Most people would say that the Fed’s interest rate decision is the reason for the plunge in USD/CAD. Truth is, we expected that decline at least three days before the Fed. The chart below was showing a big red warning sign for those, who know what to look for. (some of the marks have been removed for this article)
As visible, starting from the bottom at 1.2822, we recognized a five-wave impulse, which seemed to be close to its end. According to the Elliott Wave Principle, every impulse is followed by a three-wave correction in the opposite direction. That is why, instead of joining the bulls near 1.3240, we thought that “USD/CAD could decline to 1.3100-1.3050 first”. Four days later, let’s see an updated chart.
Once again, we have a reason to thank Ralph Nelson Elliott for discovering the Wave principle in the 1930s, which is still helping us predict the markets in 2016. If it was not for its ability to correctly anticipate trend reversals, we would have probably failed to see that the bulls are running out of power.
It could have been a costly mistake. Fortunately, by analyzing the 30-minute chart of USD/CAD through the prism of the Elliott Wave principle, we managed to avoid it. If we were to wait for the Fed’s decision, it would be too late. And late is the last thing you want to be in the markets.