Title: An In-Depth Elliott Wave Analysis of USD/CAD: An Incomplete Pattern Suggests Further Upside Potential
Author Credit: Adapted and expanded from an article by Daud Bhatti, originally published on ActionForex.com
Overview
The USD/CAD currency pair has recently caught the attention of technical analysts, particularly those using Elliott Wave Theory. The current pattern indicates that the sequence in USD/CAD remains incomplete, hinting at a potential for further upward movement. This article takes a deep dive into the Elliott Wave structure on both the higher and lower time frames and outlines potential scenarios for future price action. Additional sources have been consulted to ensure a comprehensive view of the USD/CAD technical landscape.
Understanding Elliott Wave Principles
Before analyzing USD/CAD specifically, it’s essential to briefly review what Elliott Wave Theory entails:
– Developed by Ralph Nelson Elliott in the 1930s
– Suggests that market prices unfold in specific patterns driven largely by investor psychology
– A trending (impulse) move consists of five waves: three motive waves (1, 3, 5) and two corrective waves (2, 4)
– After the five-wave impulse, a three-wave corrective pattern (A-B-C) usually follows
– These cycles repeat across all time frames
In essence, by recognizing these wave structures, traders can forecast potential future movements in price with a higher degree of reliability.
USD/CAD Weekly Elliott Wave Structure
Looking at the weekly chart, USD/CAD has been in a broad consolidation phase within a longer-term bullish structure. Daud Bhatti identifies an ongoing impulsive rally from the low that occurred in September 2022, consistent with the beginning of a five-wave advance.
Key Observations on the Weekly Chart:
– The rally that began in September 2022 appears to be a wave 1, followed by a corrective wave 2 pullback
– Currently, the pair is believed to be in wave 3 of the next upward cycle
– Wave 3 is typically the strongest and longest in an Elliott Wave 5-wave structure
According to standard Elliott Wave principles, if this analysis is correct, then the current rise in USD/CAD remains incomplete, and further upside should be expected before wave 3 ends.
He highlights that the sequence from the 2021 high is corrective in nature and aligns with the larger bullish cycle—a strongly bullish signal for longer-term traders.
USD/CAD Daily Chart Analysis
Diving into the daily timeframe, we see a clear five-wave advance from the September 2022 low:
– Wave (1): The first initial surge higher from the bottom
– Wave (2): A corrective retracement that did not break the previous low, confirming the bullish structure
– Wave (3): A strong impulsive wave in progress, but still requires more subwaves to be complete
– Wave (4) and (5): Still forming or yet to emerge, which implies completion is still some distance away
Bhatti points out that the structure of wave (3) itself is unfolding as an internal five-wave structure, in line with Elliott Wave guidelines. On the daily timeframe, we also observe:
– Momentum indicators such as MACD and RSI are not signaling strong divergence, which supports continuation
– Moving averages (such as the 100-day EMA and 200-day SMA) are aligned bullishly
Lower Time Frame: H4 (4-hour chart)
Shifting to the H4 time frame, traders can gain more detail into the internal subwaves of wave (3). The current movement appears to be in wave ((iii)) of 3, an important distinction since wave ((iii)) is often the most extended within an impulsive move.
Key Technical Features in H4:
– Wave ((i)) and ((ii)) have already unfolded
– Wave ((iii)) is currently active, suggesting more upside
– Fibonacci extension levels from wave ((i)) and ((ii)) project targets for wave ((iii)) near
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