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USDCAD Elliott Wave Update: Red Wave 5 in Progress Toward 1.42
The USDCAD pair continues to show a strong technical structure under the Elliott Wave framework. After completing what appears to be red wave 4 near the 1.3800 area, price action suggests that we have already entered red wave 5, the final impulsive leg of the ongoing sequence.
This move is unfolding gradually, and the wave pattern continues to align with standard Elliott principles. The broader setup implies that bullish momentum could extend toward the 1.4200–1.4250 range before the market pauses for a deeper correction.
How We Got Here: A Quick Recap
In the last few sessions, the market found support near the 1.38 region, where red wave 4 likely concluded. This area coincided with a previous support zone and a minor Fibonacci retracement, giving technical confirmation that a corrective phase had likely ended.
From that point, buyers began stepping back in, pushing the market higher in a pattern that fits neatly into the structure of red wave 5. This phase typically represents the final leg of a larger impulsive move — the stage where optimism builds, momentum appears strong, but underlying technicals start showing signs of fatigue later on.
For now, however, the structure looks clean and organized, which adds confidence to the current count.
Understanding the Elliott Wave Context
- Wave 1 begins the move and sets the initial direction.
- Wave 2 provides a correction that doesn’t retrace the entire move.
- Wave 3 is typically the strongest and most extended.
- Wave 4 corrects again but stays above the top of wave 1.
- Wave 5 completes the pattern, often accompanied by slowing momentum.
Currently, in USDCAD, wave 4 seems to have ended around 1.3800, and wave 5 is now in progress.
According to Elliott Wave rules, wave 4 should never overlap the territory of wave 1 — meaning it cannot dip below the start of wave 1. The recent price action has respected that rule perfectly, reinforcing the validity of the wave count.
This adherence to Elliott structure gives more reliability to the ongoing wave count and strengthens the case for the move toward 1.42–1.4250.
Technical Outlook: What the Chart Suggests
From a chart perspective, the trend structure remains bullish in the short to medium term. The price has formed higher highs and higher lows since rebounding from the 1.38 level. Key momentum oscillators like RSI and MACD are supportive, though they are beginning to approach slightly overbought territory — typical for late-stage wave 5 movements.
Price is currently trading near mid-channel resistance within an ascending pattern. If buyers maintain momentum and volume continues to confirm, the 1.42–1.4250 zone becomes a realistic short-term target.
That area also aligns with the Fibonacci 161.8% extension measured from waves 1–3, which frequently marks the completion point of a fifth wave rally.
Entry Strategy and Risk Management
For traders looking to participate in this structure, there are two main approaches:
- For aggressive buyers: Entering near the current rate offers a favorable setup, provided risk is managed carefully. A protective stop-loss should be placed a few pips below the recent swing low (below 1.38), which marks the end of red wave 4.
- For conservative buyers: Waiting for a small pullback before entering may provide a better risk-to-reward ratio. Typically, minor corrections within wave 5 offer re-entry opportunities without chasing the market.
The primary target remains the 1.4200–1.4250 region, but as always, traders should adjust stops and take partial profits along the way to protect gains.
Wave Rules and Validation Points
To keep the count valid:
- Wave 4 must not enter the price territory of wave 1.
- Wave 5 should complete with a new high above the peak of wave 3.
- Divergence between price and momentum indicators often confirms the nearing end of wave 5.
If the price fails to maintain higher lows or breaks decisively below 1.38, that would invalidate this immediate bullish count and suggest a deeper corrective phase is already underway.
Possible Scenarios After Wave 5
Once red wave 5 completes near 1.42–1.4250, we may see the beginning of a larger corrective sequence. Typically, corrections following a full five-wave impulse unfold as:
- A simple ABC retracement, or
- A complex sideways combination, depending on the broader trend environment.
In either case, traders should prepare for a slowdown in momentum and potential volatility as the market digests the extended rally.
For long-term investors, that corrective phase could later offer new opportunities once the market finds a stable base for the next impulsive structure.
Trading Psychology and Patience
It’s important to remember that wave 5 phases often attract traders who fear missing out. This is when markets can behave irrationally — pushing slightly higher than expected, then reversing sharply once enthusiasm fades.
Experienced traders know that the final leg of a rally can be profitable but requires tight risk management and discipline. Protecting profits and avoiding over-leverage is far more important than chasing the last few pips of an extended wave.
As a trader, your edge comes not from predicting every move perfectly but from positioning yourself logically within a framework — one that accounts for both opportunity and risk.
A Strategic Phase for USDCAD Traders
In summary, USDCAD remains in red wave 5, advancing toward the 1.42–1.4250 area after completing red wave 4 near 1.38. The Elliott Wave structure remains valid and intact, supported by both price behavior and technical indicators.
Buyers can consider entering at the current rate or slightly lower, with stops placed just below the recent low. The overall outlook remains bullish for now, but traders should stay alert for exhaustion signals as we approach key resistance levels.
This phase represents a tactical window for opportunity — not a time for overconfidence. By combining disciplined execution, awareness of wave rules, and a respect for market psychology, traders can navigate this stage effectively while managing their exposure wisely.
Wisdom from Past
“Risk comes from not knowing what you’re doing.” — Warren Buffett
Crucial Risk Management Advice
Crucial Advice: Effective trading is based on disciplined risk management, not prediction certainty. Always use a firm stop-loss to protect your capital. Macroeconomic news, particularly from the Federal Reserve or the European Central Bank, can override any technical pattern instantly.
About the Author
Ghulam Muhiuddin, Certified Technical Market Analyst
Experience: This analysis reflects the insights gained from 18 Years of consistent market analysis and forecasting, specializing in the application of the Elliott Wave Principle and advanced technical structures.
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