Title: Comprehensive Analysis of USD/CAD from an Elliott Wave Perspective amid Expected Double Rate Cuts
Originally published by Peter Stoneham on FXStreet
Link to Original Article: [FXStreet – USD/CAD Elliott Wave: The wake of a double rate cuts](https://www.fxstreet.com/analysis/usd-cad-elliott-wave-the-wake-of-a-double-rate-cuts-202510300003)
The USD/CAD currency pair has garnered heightened attention as investors brace for potential dual interest rate cuts by both the Federal Reserve and the Bank of Canada. Market expectations that central banks may adopt a more accommodative monetary policy stance through 2024 have introduced new complexities in the technical and macroeconomic outlook for this major forex pair. Utilizing the Elliott Wave theory, this analysis explores the evolving structure of the USD/CAD chart pattern alongside macroeconomic fundamentals.
Elliott Wave Review of USD/CAD
The Elliott Wave Principle is a technical analysis method that assesses crowd psychology, manifesting in waves of sentiment and price action. According to Peter Stoneham’s breakdown, USD/CAD appears to be forming a corrective wave pattern following strong gains earlier in the year. The medium-term structure indicates a wave (iv) correction or possibly a completed impulse wave, opening the door to potential downside risks as the pattern matures.
Key findings from the Elliott Wave analysis:
– The recent high around 1.3785 marked a possible culmination of wave (iii) or an extension.
– Since reaching that peak, the pair has struggled to gain sustainable upward momentum, possibly entering wave (iv), which often tends to be a complex sideways or simple zig-zag correction in Elliott Wave theory.
– The inability to break above the 20-day and 55-day exponential moving averages further strengthens the short-term bearish case for the currency pair.
– A break below the recent support levels at 1.3650 and 1.3570 would suggest a confirmed push lower toward the 1.3400 mark, aligning with a wave (iv) downward correction.
– Alternatively, if price action holds above 1.3600 and resets above 1.3720, there is potential for an impulsive wave (v) leg higher, possibly targeting 1.3850 to 1.3900.
Understanding these Elliott Wave structures is crucial in forecasting the next major price moves and positioning ahead of central bank announcements.
Macroeconomic Catalysts Driving USD/CAD
While technical analysis offers insights into market structure, macroeconomic fundamentals often dictate broader trends. The USD/CAD exchange rate is influenced by a wide array of domestic and global factors, primarily monetary policy, commodity prices, and economic data releases.
1. Federal Reserve Rate Outlook
The Federal Open Market Committee (FOMC) has signaled a pause in its aggressive rate hikes, with increasing chatter about rate cuts as inflation cools and growth shows signs of deceleration.
– As of October 2023, the Fed funds futures indicate up to two rate cuts in 2024.
– Inflationary pressures in the United States have moderated, with headline CPI year-over-year easing to 3.7 percent in August 2023 from a peak of 9.1 percent in June 2022.
– Slower job growth and tighter lending conditions post-SVB collapse have added to bets that the Fed is near or at the terminal rate.
2. Bank of Canada Policy Framework
The Bank of Canada (BoC) faces similar challenges with slowing domestic demand, reduced GDP growth projections, and a housing-driven economy that is sensitive to interest rates.
– Canada’s Q2 GDP contracted at an annualized rate of 0.2 percent, missing expectations and sparking debate over whether the central bank has overtightened.
– Inflation remains sticky around the 3.8 to 4.0 percent range, though core inflation measures have started to cool off.
– Like the Fed, the BoC may also cut rates in 2024
Read more on USD/CAD trading.