USD/CAD climbed to 1.3290 on July 19th, but instead of lifting the pair even higher, the bulls lost momentum. A bearish reversal followed as a result. By July 25th, when we had to send our next update to subscribers, USD/CAD was down to 1.3135. Was it a buy-the-dip opportunity or the beginning of a bigger decline? That was the question. And the Elliott Wave Principle came up with the answer.
USD/CAD 1 H Chart July 25th 2018
The hourly chart of USD/CAD suggested that an A-B-C zigzag correction has been in progress since the top at 1.3386. There was a five-wave impulse labeled as wave A down to 1.3131, followed by wave B, which appeared to be an a)-b)-c) expanding flat correction with an ending diagonal in the position of wave c) of B.
All this led to the conclusion that another five-wave decline in wave C should be expected to develop, as long as USD/CAD traded below the end of wave B at 1.3290. The 1.3000 mark looked like a reasonable bearish target. The updated chart below shows how the setup played out.
USDCAD 1H Chart August 5th 2018
1.3290 was never tested. Instead, the bears grabbed the wheel right away and are still holding it seven trading days later. On Friday, August 3rd, USD/CAD fell to an intraday low of 1.2968.
But do not be misguided. It looks obvious now, but the truth is the ending diagonal in wave c) of B might have turned out to be a leading one within a larger recovery. That is why traders should always keep an invalidation level in mind. We do not live in a deterministic world and this is especially true in the financial markets.