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Double Top Formation Threatens Sharp Correction to Key Support
Central Bank
Economic
Summary:
A renewed rejection from this zone would confirm the double top formation, triggering a bearish correction with a primary target set at 1.3981, the next major support level.
Sell
PENDINGUSDCAD
EXP
1.41400
Entry Price
1.39850
TP
1.41900
SL
1.40823 -0.00169 -0.12%
--
Point
PENDING
1.39850
TP
CLOSING
1.41400
Entry Price
1.41900
SL
Canada’s persistent inflation backdrop continues to reinforce the Bank of Canada (BoC)’s guidance that it may have concluded its easing cycle. In October, the headline Consumer Price Index (CPI) slowed to 2.2% year-over-year (YoY) from 2.4% in September, primarily reflecting lower gasoline prices.
However, excluding volatile food and energy components, the core CPI component rose to an eight-month high of 2.7% YoY, up from 2.4% in September. Furthermore, the BoC’s preferred core CPI measure (the average of trimmed and median CPI) printed at 2.95% YoY, remaining consistently above the central bank's 2% target. Market pricing currently implies a stable BoC policy rate of 2.25% over the next 12 months, with rate hikes even being anticipated over the following two years.
U.S. inflation indicators showed signs of stabilization in September. The Producer Price Index (PPI) rose 2.7% YoY, aligning with forecasts and the August reading, suggesting that wholesale price pressures have leveled off. The Core PPI offered relief, easing to 2.6% from 2.9%, falling below expectations.
Consumer activity, meanwhile, appeared to weaken. Retail Sales rose only 0.2% month-over-month (MoM) in September, a noticeable slowdown from the 0.6% increase in August, pointing toward softer consumption trends. Compounding this, the Conference Board reported that household sentiment deteriorated significantly in November, with Consumer Confidence dropping 6.8 points to 88.7 from 95.5 in October.
Federal Reserve Governor Christopher Waller publicly supported a rate cut in December, though he noted that a move in January is less certain. Waller emphasized the weakening labor market, stating: "The labor market is weak; it continues to weaken." This dovish sentiment was echoed by San Francisco Fed President Mary Daly, who maintained confidence that the Fed can guide inflation back to target, suggesting the risk of an inflationary flare-up is diminished. New York Fed President John Williams added that the Fed could still cut rates in the "near term," significantly boosting the implied probability of a rate reduction at the December 9-10 meeting.
Despite the prevailing dovish shift, recent U.S. economic data was mixed but showed resilience. September's Non-Farm Payrolls (NFP) increased by 119,000, comfortably beating the 50,000 forecast, although the August reading was sharply revised to a 4,000 loss. The Unemployment Rate rose to 4.4%, hitting its highest level in four years. Wage growth showed moderation, with Average Hourly Earnings rising 0.2% MoM in September. Despite the Federal Open Market Committee (FOMC) being openly divided, the collective commentary from key Fed officials has increased the probability of the central bank reducing borrowing costs.
Technical Analysis
The USDCAD pair appears to be on track to form a Double Top pattern at the 1.4139 resistance level. This level is highly significant, as the price previously rejected sharply downward from this exact point. A renewed rejection from this zone would confirm the double top formation, triggering a bearish correction with a primary target set at 1.3981, the next major support level.
This target is technically sound as it aligns perfectly with the 0.618 Fibonacci retracement level—a zone where deep corrections are typically drawn. In the event of a bearish correction, this Fibonacci cluster would function as a strong price magnet. The Relative Strength Index (RSI) is currently at 68.40, approaching overbought territory. While it still has room to climb, it is probable that the price may manage one final bullish impulse to test the local high before commencing the downward correction.
On the 4-hour chart, the 100-period and 200-period Moving Averages (MAs) are located at 1.4058 and 1.4032, respectively. A bearish cross and subsequent close below both these key MAs would signal an acceleration in the downward momentum, confirming the technical pattern and opening the path to the 1.3981 support target.
Trading Recommendations
Trading direction: Sell
Entry price: 1.4140
Target price: 1.3985
Stop loss: 1.4190
Validity: Dec 05, 2025 15:00:00
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