Short! Short! USDCAD - Double Head and Shoulder PatternI have identified a clear head and shoulders pattern forming within a larger head and shoulders structure on the daily timeframe for USD/CAD, indicating a potential bearish reversal.
From a fundamental perspective, several key factors are contributing to the current weakness in the Canadian dollar against the US dollar:
Canada's labor market showed significant weakness in August 2025, with a notable loss of 65.5 thousand jobs and a rise in unemployment to 7.1%, the highest in years. This has increased market expectations for monetary easing from the Bank of Canada (BoC).
Although core inflation remains above target, the weak jobs data is pushing the BoC towards potential rate cuts or a more accommodative policy stance, which weighs on the Canadian dollar.
The market is currently pricing in a very high chance (around 98%) of an additional rate cut by the BoC in September, following previous reductions to 2.75%. This dovish stance contrasts with the Federal Reserve’s more cautious or hawkish approach, creating a wider interest rate differential that supports US dollar strength.
Additionally, declining oil prices, a major export for Canada, are exerting further downward pressure on the CAD.
While recent US economic data has been mixed, the Fed is generally seen as less dovish than the BoC, sustaining demand for the USD.
Trade tensions and geopolitical risks between the US and Canada add to concerns over Canada’s growth outlook, contributing to CAD depreciation risk.
Trade Tip
A strong close below the Entry line will be a perfect entry /4hr TF
Stoploss : Above the Left Shoulder (Red Rectangle)
In summary, the combination of a weakening Canadian economy, dovish BoC bias, lower oil prices, and interest rate divergence between the US and Canada all support a bearish outlook for USD/CAD, which aligns well with the bearish head and shoulders pattern I have spotted on the chart.
Not an Investment Advise
