- USD/CAD has formed a candlestick reversal pattern on the daily chart.
- This could mark an important reversal in the short-term trend.
USD/CAD is falling on Thursday, trading almost half a percentage point lower on the day, and forming a long red candlestick (see chart below).
USD/CAD Daily Chart
On Wednesday USD/CAD formed a bearish Hanging Man Japanese candlestick pattern (blue rectangle on chart above). This pattern forms when price rises to a new high, pulls back down during the same day, then recovers again and closes the day just below where it opened. If it is followed by a red down day, a short-term bearish reversal is confirmed.
Thursday’s red down day so far appears to be confirming the Hanging Man. It may be highlighting a pivot point, or reversal of the rally that began at the August 28 low.
USD/CAD is oscillating within a larger range and the overall structure of the move down from the range high appears to conform to that of an ABC pattern, or “Measured Move”. These patterns are like large zig-zags with wave C usually reaching a similar length to wave A. If USD/CAD really is forming an ABC pattern then C should end within the zone of the range lows (orange shaded rectangle on chart above).
It is also possible the move could reach a point where wave C is a Fibonacci 0.618 ratio of the length of wave A. If so it would probably reach 1.3326.
If Thursday ends as a bearish down day it will provide confirmation of an extension lower towards the aforesaid targets. A break below 1.3466 (September 6 low) would provide additional bearish confirmation.
