The countertrend rally could stall

• USD/CAD pulled back after hitting the September 25 low.
• The ensuing correction now appears to have run its course and the pair could be vulnerable to a retracement.

USD/CAD suddenly reversed course in the middle of a strong downtrend and recovered on September 25th. The pair quickly rallied from 1.3420 to 1.3539, but now the rally appears to have stalled after peaking at a similar level for the past two consecutive days (blue box in the chart below).

USD/CAD Daily Chart

There is a chance that the pullback has run its course, and given that the medium-term trend remains bearish, prices could begin to decline again.

A move below 1.3457 (September 26 low) would confirm a resumption of the downtrend, likely to at least the September 25 low of 1.3420. A close below September 25 would provide bearish confirmation of more lows of the range – an area starting around 1.3222. and ends at 1.3106.

USD/CAD appears to have formed a large zig-zag pattern, known as a Measured Move, since it peaked on August 5th. If so, then it is detrimental for the pair as the bearish target for the last wave C of the pattern is at the low. 1.3326, the 61.8% Fibonacci extension of wave A.