A Month Ahead: USD/CAD's Bullish Reversal
EWM Interactive | Feb 10, 2019 05:56AM ET
USD/CAD finished 2018 in a positive mood. The pair reached 1.3665 on the last day of last year, but 2019 has not been so generous to the bulls so far. By February 1st, the rate was down to 1.3069, losing over 4.3% in just a month.
But let’s take a step back and see where exactly was USD/CAD trading at in mid-January. It shows that the U.S. dollar has been following its Elliott Wave path against the Canadian dollar for almost a month now.
The 4-hour chart allowed us to see the wave structure of USD/CAD’s rally from 1.2783. We admit it wasn’t exactly a textbook impulse pattern, but there was a way to count it as a five-wave sequence without breaking any rules. According to the bigger time-frames, also included in our analyses, that was the right approach.
This, in turn, meant that the sharp selloff from 1.3665 must be the first phase – wave A – of a larger three-wave A-B-C correction in wave 2. The 61.8% Fibonacci level looked like a reasonable bearish target in wave C. But first, it was time for a short-term recovery in wave B.
h2 USD/CAD Bulls Had To Return Near 1.3100/h2Once the entire three-wave retracement in wave 2 was over, it made sense to prepare for a bullish reversal from the above-mentioned Fibonacci level. That was all the information we could extract from USD/CAD’s 4-hour chart on January 14th. Almost a month later, the updated chart below shows how the situation has been developing.
Wave B managed to lift USD/CAD to 1.3376 on January 24th. Then the bears returned to finish their job. Wave C fell to 1.3069, slightly breaching the 61.8% Fibonacci level. And just when the bears’ roar was getting too loud to ignore, the pair reversed to the upside and climbed to 1.3329 so far.
Elliott Wave analysis has its limitations. For instance, we could not have identified the exact termination points of waves B and C in advance. We doubt that a method that can do that even exists. But the Wave principle’s ability to provide a road map to navigate traders through market uncertainty is what makes this method the Cadillac of technical analysis.
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