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Unpacking the Long-Term Elliott Wave Count for USD/CAD
When we step back and look at the USD/CAD price action over the past several years, we can see a clear, higher-degree impulsive structure taking shape. The fundamental premise of this analysis is that the pair has completed a major correction and is now embarking on its final, powerful upward move.
The Completed Correction: Blue Wave 4/
According to the wave count, the major, multi-year corrective phase—labeled Blue Wave 4/—officially concluded on May 30, 2021. This point marked a significant low for the pair, setting the stage for the current long-term rally.
The Blue Wave 4/ unfolded as a flat correction, which is a three-wave corrective pattern typically labeled A-B-C. A key characteristic of a flat correction, which adheres to the Elliott Wave principle, is its internal subdivision of 3-3-5. This means:
- Cyan Wave A (3 Sub-waves): This first leg of the correction was a three-wave move, labeled internally as red abc. This structure is consistent with the initial wave of a flat correction.
- Cyan Wave B (3 Sub-waves): The counter-trend move within the correction, which often runs close to or past the start of Wave A, was also a three-wave structure, labeled internally as red abc. This leg finished on January 15, 2020.
- Cyan Wave C (5 Sub-waves): The final leg of the correction must be a five-wave structure to complete the pattern. This motive wave, cyan C, finished on May 20, 2021, confirming the completion of the larger Blue Wave 4/ and establishing a significant low for the medium-to-long term.
This detailed wave history provides a strong technical foundation for the current bullish expectation, confirming that a major period of decline has ended.
🚀 The Anticipated Bullish Drive: Blue Wave 5/
Assuming this historical Elliott Wave count is accurate, the USD/CAD pair is currently engaged in the final, multi-year motive phase: the Blue Wave 5/. This wave is the culmination of the entire multi-year cycle and is expected to be a substantial move to the upside.
- Long-Term Target: The minimum price objective for the completion of this final Blue Wave 5/ is projected to be around 1.50 or higher. While this is a long-term target, it establishes the potential scale of the ongoing move.
Focusing on the Short-Term Setup
Internal to the massive Blue Wave 5/, we are now focusing on its smaller-degree sub-waves, labeled as Blue 12345.
Our current analysis suggests that the first sub-wave of this rally, cyan Wave 1, was completed around July 10, 2022. Following the completion of any motive wave (Wave 1), the market must undergo a corrective phase (Wave 2) before the next impulse begins.
- Current Phase: The market is currently unfolding the cyan Wave 2 correction. This correction is essential—it is the market's way of building a stronger foundation and gathering momentum before the next, more powerful rally.
- The Next Impulse: Once this cyan Wave 2 correction is complete, we anticipate a strong, impulsive surge in cyan Wave 3. In Elliott Wave theory, Wave 3 is often the longest and most powerful wave, making it a highly desirable trading opportunity.
🎯 Critical Levels and Trading Strategy
The immediate market action is defined by a major resistance level at 1.3212.
- The Psychology of Wave 2: The current downward movement (cyan Wave 2) is a natural pullback. For the market to successfully break a significant level like 1.3212, it often needs to retreat and gather substantial buying interest before returning with the force required for a convincing breakout. This downward cycle is precisely what creates the energy for the next powerful upward move Wave 3).
Invalidation Scenario
The short-term expectation for the Wave 2 correction (a move lower) would be invalidated if the price breaks above 1.3207. A move above this level would suggest that the first wave, cyan Wave 1, is still active and taking more time to complete its structure. Critically, however, the overall long-term bullish scenario (Blue Wave 5/ targeting 1.50) remains intact unless a much lower structural level is breached.
Short-Term Trade Recommendation
Given the expectation for a continued cyan Wave 2 correction, a short-term trading opportunity lies in trading the downward move:
| Parameter | Value | Rationale |
|---|---|---|
| Trade Type | Short-Term Sell/Short | Targeting the completion of the cyan Wave 2 correction. |
| Entry | From the current price | Entering the expected pullback. |
| Stop Loss | Just above the previous high | Using the previous high as the clear point of invalidation for the short-term pullback. |
| Target 1 | 1.2762 | Corresponds to the 38.2% Fibonacci retracement level. |
| Target 2 | 1.2480 | Corresponds to the 61.8% Fibonacci retracement level. |
Crucial Trading Note: This trade relies on the completion of a corrective phase. Traders must exercise strict risk management by adhering to the stop-loss level, as the underlying long-term trend remains strongly bullish, and a swift reversal into Wave 3 could occur unexpectedly.
Quote of the Day
“Patience turns uncertainty into opportunity”
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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