USD/CAD rose significantly this past week, climbing from 1.2512 at the open to as high as 1.2949 Friday. The surge can be attributed to the slide in crude oil prices. Oil and USD/CAD are known to have an inverse correlation due to the heavy reliance of Canada’s economy on the commodity.
And while the decline in crude oil made sense after its long rally to over $76 a barrel, the two don’t always move in sync. Fortunately, USD/CAD has its own charts and patterns that forex traders can solely focus on. The chart below, for example, from Aug. 2, reveals the bullish Elliott Wave setup that planted the seeds of last week’s surge.
USD/CAD 1-Hr Chart – Aug 2, 2021
The hourly chart of USD/CAD focused on the structure of the recovery from 1.2007 to 1.2808. As visible, it looked like a five-wave impulse, labeled 1-2-3-4-5, followed by a simple a-b-c zigzag correction. Taken together, the two patterns formed a complete 5-3 Elliott Wave cycle.
According to the theory, the trend was supposed to resume in the direction of the impulsive sequence. Hence, with the pair under 1.2480, we thought more strength can be expected going forward. Twenty days later now, the updated chart below shows how the situation developed.
USD/CAD 1-Hr Chart – Aug 22, 2021
The rate started rising almost right away. With the exception of a small consolidation between 1.2480 and 1.2590, the bulls remained firmly in control the entire time. USD/CAD exceeded the top of wave 5 on Thursday, Aug.19, thus reaching the setup’s initial target and then some.
USD/CAD and oil prices do, indeed, have an inverse relationship most of the time. This fact, however, doesn’t make predictions about them any easier. The good news is they produce their own Elliott Wave patterns to help us stay ahead of the market.