Nearly one year ago to the day, USD/CAD began a long and grueling upward correction. USD/CAD reached an important pivot point near 1.38 on Friday. A late Friday sell off was fueled by better than expected improvements in the Canadian unemployment rate sending the pair diving to finish the week.
The Elliott Wave picture for the Loonie shows a higher probability scenario of additional weakness towards 1.3411 and even lower. You see, it appears USD/CAD finished a terminal wave at multiple degrees on Friday. One of the patterns at smaller degree appears to be an Elliott Wave ending diagonal. Many times, an ending diagonal is swiftly retraced back to its origin. In this case, the origin of the ending diagonal pattern is 1.3411.
Since this May 5th wave appears to be terminal at multiple degrees, it is possible we may be on the leading edges of a deep and protracted sell off that pressures new lows below 1.24. A break below 1.3639 may be an early warning signal that additional losses may continue. If USDCAD exceeds the 1.3793 high, then we will need to reassess the wave picture.
However, the sentiment picture is not as bearish. Traders remain net bearish the pair at -3.2. If this sentiment reading begins to increase, then that would signal a shift in sentiment that lines up with the overall Elliott Wave picture. Learn how to trade with sentiment with our IG client sentiment guide.
---Written by Jeremy Wagner, CEWA-M
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