Title: In-Depth Elliott Wave Analysis of USD/CAD: A Bearish Reversal in the Making
Credit: Based on analysis by EWM Interactive, published on August 11th, 2023
The USD/CAD currency pair is widely monitored by traders due to its reaction to oil prices, North American economic indicators, and central bank policy divergence. As of August 2023, the pair has experienced turbulent price action, marked by periodic rallies and corrections. However, a deeper examination through the lens of Elliott Wave theory offers actionable insights for medium to long-term traders. This article presents an extended breakdown of USD/CAD using Elliott Wave principles and provides context with supporting information from external sources.
Overview of Elliott Wave Theory in Forex
Before diving into the technical narrative, it is important to revisit the basics of Elliott Wave theory. Developed by Ralph Nelson Elliott in the 1930s, this methodology is based on the premise that prices move in predictable patterns driven by crowd psychology. These patterns are broken down into:
– Impulsive Waves (moves in the direction of the main trend, typically 5 waves)
– Corrective Waves (counter-trend moves, typically 3 waves: A, B, C)
– Wave degrees (waves within waves; fractal structure)
The theory assumes that financial markets follow a natural rhythm of optimism and pessimism, expanding and contracting in alternating cycles.
USD/CAD Long-Term Elliott Wave Count
According to the August 11th analysis by EWM Interactive, USD/CAD’s long-term structure suggests the completion of a significant rally and the early stages of a potential downtrend. Here’s how the wave structure breaks down:
– From the major low of 0.9056 in September 2012, USD/CAD entered a strong five-wave impulse, peaking around 1.4668 by January 2016.
– Wave 1: Impulsive rise from 0.9056 to ~1.1280
– Wave 2: Shallow correction back to ~1.06
– Wave 3: Strongest move up, reaching ~1.3400
– Wave 4: Sideways pattern, consolidating near 1.28
– Wave 5: Final rally reaching the top of 1.4668
– This completed the larger-degree Cycle impulse, labeled as wave (I), followed by a corrective cycle wave (II).
– Wave (II), as observed, unfolded as a complex W-X-Y double zigzag correction, bottoming around 1.2060 in September 2017.
Contextually, the 1.4668 level marked the highest point since the 2000s, indicating long-term significance and setting the stage for a multi-year decline.
The Cycle Degree (III) Count
After wave (II) completed, USD/CAD launched another rally, which at first resembled wave (1) of a new upward wave (III). This rally carried the pair from the 1.2060 region to around 1.4667 in March 2020, right at the onset of the COVID-19 pandemic.
– However, instead of continuing higher as part of a sustained uptrend, the structure lost momentum.
– Subsequent price action showed a series of overlapping waves, failing to break past previous highs.
– This lack of follow-through suggests the completed five-wave move may in fact be a C-wave of a larger A-B-C correction, rather than a new impulsive advance.
As per the Elliott Wave guidelines, failed fifth waves and weak advances after major tops can be signs of trend exhaustion.
Revised Interpretation: A-B-C Completed, Prepare for Downtrend
The revised view proposed by EWM Interactive on August 11th highlights a different interpretation:
– From the low at 1.2060 in 2017, USD/CAD formed an A-B-C zigzag correction:
– Wave A: Rally up to
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