USD/CAD – More Downside Likely In the Weeks Ahead

Early last week we saw the USD/CAD consolidate over key support levels which was leaving us with quite a few options on the table as to the short0term pattern. At that time I noted that I was viewing the 1.3652 support level as a key signal level that would help indicate if we were indeed going to see a C wave higher back into the 1.4000 range or if we would simply continue to move directly into the lower bypassing the C wave back into those higher levels. Well, it took a few tests of this support level, but finally after the third test of this 1.3652 level we saw a sharp move lower. So with this break the big question is now what is in store in the weeks ahead?

On the larger time-frames it is clear that the top that we saw in January at the 1.4696 level was a significant larger degree top. This high hit the 338.2 extension of the initial wave off of the 2011 low almost to the penny. While the 338.2 extension is a less common extension, the fact that it came so close to hitting that fib on such a large degree does make me take notice. This is a much more common Fibonacci extension level that we would expect to see during a third wave and not a C wave.



So while the entire move off of the 2011 low is still not entirely clear and could be counted as either a completed corrective pattern or still an impulsive pattern, the fact that we hit the 338.2 extension certainly has me leaning towards this still needing yet another move up over the January high prior to a much larger degree top being in place. Now with that being said, on the more intermediate time-frames over the next several months the trend is clearly down and as long as we remain under the 1.3603-1.3660 resistance levels I do expect to see lower levels. 



Zooming into the 1 hour chart we can see that the action we saw on Friday was very typical of a minor degree fourth wave consolidation. In this case I am counting this consolidation as part of wave ((4)) of iii down with targets for wave iii coming in at the 1.3416 -1.3302 zone with resistance levels for this wave ((4)) again coming in at the 1.3603-1.3660 zone. A break back over this resistance zone would be the first indication that this move to the downside for wave C of 4 is not going to play out impulsively. Of course as the pattern is still very incomplete even if we do break back over these resistance levels it is still likely that we still will see lower levels in the form of an ending diagonal to the downside as the pattern is still quite incomplete.



It would really take a move over the February 24th high at the 1.3857 level to consider that we have a more significant bottom in place, and as long as we are trading under these levels the pressure over the intermediate time-frame is still very much to the downside on this pair.