More downside is expected as wave C rolls out

• USD/CAD pulled back in a strong downtrend.
• It will likely continue to decline as wave C of a measured move unfolds.

USD/CAD pulled back amid a strong bearish move. On Wednesday, the pair recovered about half of the previous day’s losses and formed a continuation pattern of the Japanese Marubozu candle. These are long red candles that close close to their lows.

It often happens that the market withdraws 50% of Marubozu, which happened on Wednesday. Thursday sees a renewal of the weakness so far.

USD/CAD Daily Chart

USD/CAD’s move down from the high that started on August 5 looks like an ABC pattern, otherwise known as a “Measured Move” (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 a Fibonacci 61.8% of A.

Assuming USD/CAD is in a wave C, it will likely continue to play out despite the current pullback. It should at least touch the conservative target for the pattern at 1.3326, the 61.8% Fibonacci retracement of wave A. In a very bearish case, it could fall into the range lows (shaded orange rectangle on the chart above ).

A break below the low of the Marubozu candle around 1.3419 would provide further bearish confirmation of the aforementioned targets.