The Bearish Hanging Man reversal pattern has been confirmed

• USD/CAD formed a Japanese candlestick reversal pattern on Wednesday.
• The price could be about to drop into a large ABC or Measured Move price pattern.

USD/CAD formed a Hanging Man candlestick reversal pattern (blue rectangle on the chart below) on Wednesday, suggesting more downside is likely for the pair in the near term. The pattern got confirmation after Thursday ended as a long, red, down day.

USD/CAD Daily Chart

The Hanged Man is formed when the price rises to a new high, pulls back down on the same day, then recovers again and closes the day close to where it opened. If it is followed by a red down day – as was the case with USD/CAD – a short-term bearish reversal is announced.

USD/CAD’s move down from the high appears to be conforming to an ABC or “Measured Move” pattern (see the labels on the chart above). Such patterns are like large zigzags. Wave C usually reaches a similar length to wave A or at least is a Fibonacci 61.8% of A.

If USD/CAD is indeed forming an ABC pattern, then wave C is likely to unfold and descend substantially. Such a leg down would likely fall into the lows of the range (shaded orange rectangle in the chart above). Meanwhile, the 61.8% target is at 1.3326.

It is still a bit early to be sure that USD/CAD has reversed and will continue to decline. A break below 1.3533 (September 19 low) would provide further bearish confirmation, and a break below 1.3466 (September 6) an even stronger confirmation.