The USD/CAD produced a strong bullish breakout last week. But the currency pair now finds itself near a completion of a larger pattern. Today’s anayliss will provide a updated wave analysis and price forecast for the week ahead.
Last week’s bullish impulse catapulted the USD/CAD very close to the upper resistance trend line (black) of the large leading diagonal I have been tracking in my previous USD/CAD posts. This move should complete the entire structure since the Sep 2017 low, and create a sizable bearish correction as Wave 2 after the diagonal gets underway.
The exact reversal spot is tricky to pinpoint however. Last week’s bullish move no doubt shows an impulse with an extended Wave 1. The move came very close to the key reversal area but stopped just shy of the actual upper resistance trend line.
It is possible that the entire swing could have ended already at the high that was created earlier today, which would mean fairly swift follow-through to the downside later today (yellow price line projection).
Alternatively, price could attempt to extend its move upwards, either by creating a larger impulse that will include the extended Wave 1 within it (green count) or morph into an ending diagonal (not shown above). These options would mean a couple more higher highs that will grind towards the upper trend line and the 61.8% Fibonacci Extension Area (i.e. between 1.3260 and 1.33 depending on how deep the current bearish correction goes). This would be my preferred/ideal price-action scenario (for the purposes of entering a short position) because it would provide more confirmation that momentum has been exhausted. The very strong weekly and daily candle closes suggest that a little follow through to the upside is quite likely.
An immediate and strong price drop, which looks out of proportion to the previous bullish move, means that the top is most likely in place already. Short position could then be entered after a bullish 3-wave pullback.
All the best along your trading journey.