Previously, we wrote how USD/CAD appeared to be in a corrective phase higher within the context of a larger down trend. We estimated 1.27-1.31 as a potential pivot zone for the up move.
On October 31, USD/CAD reached a high of 1.2915 after completing a bullish zigzag pattern. As a result, USD/CAD has subsequently sold off over 200 pips. The Elliott Wave models we are following suggests additional rallies may be temporary and that the market is anticipated to be overly weak.
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Currently, prices are resting on top of a support trend line. Though we may see a technical bounce higher, shorter-term traders may consider 1.2820 as the key level of resistance for an immediate bearish outlook.
The higher probability move at this point suggests USD/CAD may sell-off towards 1.2500 so long as prices are below 1.2820. Even lower prices are possible, but we will need to see the structure of the sell-off, if it occurs, to weigh the probabilities if this is the start of another long trend lower below 1.20.
From a sentiment perspective, the majority of traders are positioned net long and the number of long traders are growing. Sentiment is a contrarian tool so it provides us with a bearish signal for USD/CAD. As a result, the bearish sentiment signal on USD/CAD is lining up with our Elliott Wave forecast.
Whether we are still in a 2nd wave advance or third wave sell-off, the models are pointing to a USD/CAD forecast below 1.25 so long as 1.2820 holds.
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---Written by Jeremy Wagner, CEWA-M
Jeremy is a Certified Elliott Wave analyst with a Master’s designation. This report is intended to help break down the patterns according to Elliott Wave theory.
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