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The wave counting of the currency pairs under consideration doesn’t rule out the beginning of a new stage of the dollar’s weakening this week (refer to The review of the bigger Time-Frames (II quarter of 2008)). According to the wave counting it is possible that the Canadian dollar outpaces them by the whole month and is forming the first waves of a new downtrend.
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Figure 1. Wave counting on 360 min chart.
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At the moment the Canadian dollar has formed an interesting knot which can be interpreted as initial waves of a downward wedge. This supposition isn’t confirmed yet but if this happens the movement of USD/CAD will be almost synchronous with the expected new stage of the US dollar weakening in the currency pairs under consideration.
Critical levels for this scenario are the beginning of the supposed wedge and the ending of its wave [ii] of 1. Besides the third wave of the wedge [iii] of 1 proved to be shorter than its first wave [i] of 1, that supposes the fifth wave [v] of 1 will be even shorter. If price falls in a motive mode after corrective wave 2 it will be the confirmation of this scenario.
As an alternate it is quite natural to suppose that a sequence of downward waves 1-2, 1-2 is developing. If the downward impulse that is forming at the moment on this time-frame completes below the 0.9927 mark a switch to this scenario will become possible.
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Figure 2. Wave counting on the daily chart.
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Any forecast remains sensitive until it is confirmed. Thus a perspective supposition of the beginning of a new stage of the US dollar weakening is only one of the possible scenarios and requires its confirmation.
Arguments in the favor of this scenario is the fact that the uptrend since the end of the last year is of rather corrective than impulse nature and may be interpreted as a completed double three W-X-Y of (2). Both the truncation of the double three and the forming downward wedge may speak of the strength of the downtrend.
But market is market and in case if the price breaks the critical level it is possible that the upward correction will continue in the shape of a double or triple zigzag.
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Figure 3. Wave counting on the weekly chart.
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Figure 4. Wave counting on the monthly chart.
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If the supposition of the beginning of a new stage is confirmed the USD/CAD may decline as it is shown in Figures 3 and 4, almost synchronously with the currency pairs under consideration EUR/USD, GBP/USD, JPY/USD and USD/CHF (refer to the article The review of the bigger Time-Frames (II quarter of 2008)).
Thus at the moment the wave structure considered in Figures 1 and 2 signals possible beginning of a new stage of the decline in the currency pair USD/CAD. At the same time this supposition isn’t confirmed by the price yet.
Addition of May 7, 2008
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Figure 5. Wave counting on 360 min chart.
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Changes of the wave counting for the last 10 days let us specify significant levels.
In order that the supposed wedge 1 correspond to the rules of EWA its wave [v] of 1 must touch or cross the confirmatory level 0.9986. At the same time the price mustn’t break the critical level 0.9955 (this is the updated value of the critical level as the ending of wave [iv] of 1 was corrected).
Otherwise the stockade of waves that has been forming since the end of March 2008 can be interpreted as the wave sequence 1-2, 1-2 of decreasing wave degrees (refer to the alternate counting at the bottom of the chart).
If the price breaks the upper critical level 1.0324 further forming of the corrective wave (2) should be expected.
Addition of May,16
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Figure 6. Wave counting on 360 min chart.
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In spite of some clumsiness of the ending wave [v] of 1 it isn’t ruled out that the initial diagonal triangle 1 (wedge) is completing.
In order that the supposed wedge 1 correspond to the rules of EWA its wave [v] of 1 mustn’t break the critical level at 0.9955. Otherwise the stockade of waves that has been forming since the end of March 2008 may be interpreted as the wave sequence 1-2, 1-2 of decreasing wave degrees (refer to the alternate counting at the bottom of the chart).
If the price breaks the upper critical level at 1.0324 further forming of the corrective wave (2) should be expected.
Addition of May,19
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Figure 7. Wave counting on 180 min chart.
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A wish to find the optimal counting of the construction that has been developing since the beginning of April has led to the variant given in the Figure.
The fourth wave of the supposed wedge can be easily presented in the form of a double three the intermediate waves of which are expanded flats ([A]-[B]-[C] of b of (x) of [iv] and a-b-c of (x) of [iv]). The complexity of this knot confirms indirectly that this is the fourth wave.
Besides the depth of the corrective waves [ii] and [iv] corresponds to guidelines for wedges (refer to page 186 of my book), which is an additional argument in the favor of my variant.
In this case the ending wave [v] of wedge 1 turns to be a diagonal triangle — a most singular phenomenon! Let me quote remarks from pages 186-187 of my book:
«Remark. Theoretically the fifth wave of the edge may be a diagonal triangle, but I haven’t come across such a case on the Forex market. Moreover some foreign authors deny such a possibility though without cause.»
If the supposition is confirmed this case will take its place in the bank of rare patterns.
As the third wave (iii) of [v] turned to be shorter that the first wave (i) of [v], the critical level for the diagonal triangle [v] of 1 is 0.9929 mark.
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Figure 8. Wave counting on 360 min chart.
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If the supposition about forming of a downward wedge (or the wave sequence 1-2, 1-2) is true the local strengthening of the US dollar is expected until the end of the week (the rise of USD/CAD) .
If the price breaks the upper critical level at 1.0324 forming of the corrective wave (2) should be expected.
Addition of May, 20
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Yestrerday’s price decline below 0.9929 makes me modify the counting of the ending diagonal triangle [v], leaving the core of the general wave counting intact..
Taking into consideration the fact that the third wave of the wedge [iii] of 1 is shorter than its first wave [i] of 1, and the third wave of the diagonal triangle (iii) of [v] is shorter than its first wave (i) of [v], the critical levels for these patterns were determined. They coincided in a remarkable manner and the critical level 0.9889 is the last defense line for this scenario. Besides if the wedge pattern is confirmed it will be a unique wedge with the ending wave in the form of a diagonal triangle (refer to Remark at page 186 of my book).
At the moment the price has approached closely the critical level but the fact that the price touched the lower forming line of the wedge 1 gives good chances for the price bounce up in the nearest term. If the supposition about forming of a downward wedge (or the wave sequence 1-2, 1-2 in case of a deep break of 0.9889 level) is true, the local strengthening of the US dollar is expected until the end of the week (the rise of USD/CAD).
If the price breaks the upper critical level at 1.0324, further forming of the corrective wave (2) should be expected.
Reference
Dmitry Voznuy
forDmitry@yahoo.com
April 28, 2008
When using any part of the article for publication or analytical materials reference to the author and Alpari is obligatory.
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