New mid-term fall of USD is possible (EWA of USD/CAD)

In the forecast for 2006 (refer to Annual-06) it was supposed that USD fall ending was possible in autumn 2006 in case complete corrective three pattern had formed by that time. If it did not happen, the dollar fall could continue till May 2007. Once the check point had been reached, the forecast for the main USD pairs was adjusted correspondingly at the end of October (refer to Check point. USD fall may continue till May 2007).

Though USD/CAD has not been adjusted. This pair, though considered optionally, also responds to USD strengthening/weakening.

Possible extension in CAD downward movement, supposed at the beginning of September, has not realized (refer to USD/CAD fall may complete with an extension). But from the mid of 2005 an interesting downward structure formed, which has been treated, with reason, as a diagonal triangle recently (wave 5 of (3) in Figures 1, 2, 3). One of the scenarios of CAD possible movement, which is gaining momentum currently, admits that this diagonal triangle has been completed already (Figures 1, 2, 3).

Figure1. Survey wave counting of the monthly chart.

If the assumption about the current counting is correct, wave (3) = ~ (1) x 4.237. Moreover, waves intercrossings inside wave 5 of (3) fit in the pattern of the final diagonal triangle (refer to Figure 2).

Figure 2. Wave counting on the daily chart.

In this Figure it can be clearly seen that wave counting of the inner waves of the previous variant of the diagonal triangle has been modified slightly, as price has broken significantly the upper generating line. In case my suppositions are correct, wave counting of the global impulse may look like this (Figure 3).

Figure 3. Wave counting on the weekly chart.

According to this variant of wave counting wave 5 of (3) completion is confirmed by the divergence between the endings of waves 3 of (3) and 5 of (3), and between [iii] of 5 and [v] of 5.

Moreover, the fourth wave (4) of impulse [A] may also complete soon as price has almost reached the upper edge of the channel of the global impulse. The depth of the retracement of supposed wave (4) currently makes about 12.5% (fibo), which corresponds to the guidelines for alternation of the corrective waves of the impulse. Moreover, MACD 5-34-5 oscillator has crossed the zero line. All that signals that supposed wave (4) has fulfilled the minimum requirements for the fourth waves of the impulse, that is its earliest completion is possible.

Though completion of its wave structure is still the main criterion of the wave possible ending. That is why let's consider its enlarged wave (4) (Figure 4).

Figure 4. Wave counting on 720 min chart.

Wave formula of supposed wave (4) is equal to 3-3-5, that is it may be a flat with completing diagonal triangle as wave C of (4). Projection method “trend-to-trend” gives us projection of wave C ending around 1.1555, method “correction-trend” - projection 1.1571 (refer to Methods of price movement projection).

Moreover, supposed diagonal triangle has formed with the longest first wave [i] of C, which places some restrictions on the length of its wave [v] of C, it should not exceed 1.1601 edge. For possible specification of the projections let's refer to the smaller time-frame.

Figure 5. Wave counting on 120 min chart.

Final wave of the diagonal triangle is supposed to be assuming the shape of the ordinary zigzag (a)-(b)-(c) of [v]. In case the legs of this zigzag are equal, we get another projection of the pattern completion around 1.1558 (Figure 5).

Thus, in case my suppositions are correct, in the nearest future CAD may reverse its mid-term trend against the dollar. Of course, it should be remembered that we may observe forming of high A of (4) only, that is the first wave of a new correction, rather than of the whole corrective wave (4).

If the wave picture changes or the critical levels are broken, this scenario may be modified or annulled.

Addition (December 15, 2006)

Figure 6. Wave counting on 60 min chart.

CAD has reached the projected levels and approached the critical level at 1.1601. Price lacks a small upward thrust [5] to complete impulse (c). According to R. Balan's Fifth Measurement Method (refer to Methods of Price Movement Projection (EWA)) wave v may be equal to the distance between the beginning of the impulse and the high of the third wave iii.

Addition (December 18, 2006)

Several new arguments in favor of USD expected fall are given below.

Figure 7. Wave counting on the weekly chart.

RSI has tested its resistance level while price is at the upper edge of the channel, which increases chances of the trend downward reversal.

Figure 8. Wave counting on 480 chart.

Price has broken the upper edge of the supposed contracting diagonal triangle C. As a rule, it occurs before the very completion of the diagonal triangle. Moreover,divergence formed between the endings of the third and fifth waves and corresponding endings of oscillators MACD and RSI, which may also signal this pattern completion.

By the way, note that RSI and MACD oscillators are forming the resistance line while price reverses at the lower edge of the trend channel (refer to parts 4.5 and 4.6 in book Elliott's Code: Wave Analysis of the FOREX Market).

Figure 9. Wave counting on 60 min chart.

CAD has reached the projected levels, almost approached the critical level at 1.1601 and almost completed forming of the diagonal triangle v of (c). According to R. Balan's Fifth Measurement Method (refer to Methods of Price Movement Projection (EWA) and part 4.4 in book Elliott's Code: Wave Analysis of the FOREX Market) the length of wave v, which has assumed the shape of the diagonal triangle, may be equal to the distance between the beginning of the impulse and the ending of the third wave iii (calculated value is equal to 1.1590).

Though in case price fixes behind the critical level, current wave counting should be adjusted.

Addition (December 19, 2006)

Figure 10. Wave counting on 60 min chart.

Some horizontal construction, which may be the fourth wave of the diagonal triangle, e.g. in the shape of the horizontal triangle, is forming now. Though in case price fixes above the critical level, current wave counting should be adjusted.

Summary (December 21, 2006)

Figure 11. USD/CAD reversal point projection summary.

The most near-real projective value was reached in the smallest time-frame from those under consideration (projection – 1.1590, real value – 1.1587).

Reference