Saturday, October 15, 2016

Is USD/CAD Forming a Pennant?

I am asking myself about this for one reason only – it is well-known that the pennant is a relatively short-term figure and it definitely takes shorter time to form than the trend it corrects.

As you can see on the daily or the weekly time frames, this figure fits almost all rules of pennant formation:

1. It’s forming in a direction opposite of the trend beforehand.
2. Its trendlines are converging.
3. Four points are required to draw it.
4. It’s forming above a support.
5.The trend beforehand forms the pennant’s handle.
6. The pennant is forming for less time the trend it corrects?

Obviously this corrective figure doesn’t actually follow the sixth rule at all and that is the reason why I am asking myself whether it is truly a pennant.
If it does turn out to be one, then after the inevitable breakout we should see a movement of about 745 pips.
For now we can’t say in which direction there will be a breakout. The pennant is usually a trend-continuation figure, but there are cases when the breakout is in the opposite direction. In this case that would to the upside.

There are a lot of questions before us and only the market can answer them. We have to be ready to react to that on time.