The Hanging Man reversal candlestick could signal an important pivot

• USD/CAD has formed a candlestick reversal pattern on the daily chart.
• This could mark an important near-term trend reversal.

USD/CAD is lower on Thursday, trading nearly 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 Japanese Hanging Man candlestick pattern (blue rectangle in the chart above). This pattern is formed when the price rises to a new high, pulls back down on the same day, then rebounds 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 Day so far seems to confirm the Hangman. It may highlight a pivot point or a reversal of the rally that started at the August 28 low.

USD/CAD is oscillating in a larger range and the overall structure of the move down from the high appears to conform to an ABC or “Measured Move” pattern. These patterns are like large zigzags with wave C usually reaching a similar length to wave A. If USD/CAD is indeed forming an ABC pattern, then C should end in the area of ​​lows in the range (shaded orange rectangle in the graph above).

It is also possible that the move reaches a point where wave C is a 0.618 Fibonacci ratio of the length of wave A. If so, it would probably reach 1.3326.

If Thursday ends as a down day, it will provide confirmation of a lower extension to the targets mentioned above. A break below 1.3466 (September 6 low) would provide further bearish confirmation.