Monday, September 05, 2016

After Forming a Pennant for Three Months USD/CAD Broke Below It and Continued Dropping

The USD/CAD pair has been consolidating for three months now, forming a trend-continuation pennant figure.

Let’s list the main characteristics of a pennant:
1. It forms in a direction opposite of the main trend or it’s flat.
2. It forms faster compared to the main trend.
3. You need four points to draw a pennant.
4. The pattern has converging trendlines.
5. The breakout usually occurs between 2/3rds and 3/4ths of the length of the pennant.
6. After a breakout there is usually a retracement to test the level of the breakout.
7. The pennant is a trend-continuation pattern.

We can observe a pennant on the USD/CAD daily time frame that fits all these conditions. Logically, the pair continued moving in the same direction of the main trend.

The limit of this figure is its height projected from the breakout level and considering that its height is around 550 pips and the breakout level is at 1.3040, then I expect the move to the downside to eventually reach 1.2480.