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Technical Signals Point to Potential Downturn in USDCAD
Economic
Central Bank
Summary:
If USDCAD fails to break above the right shoulder and post a new higher high, price could resume lower, with the next key support seen near 1.3758.
Sell
TradingUSDCAD
EXP
1.38330
Entry Price
1.37600
TP
1.39100
SL
1.38356 -0.00077 -0.06%
0
Point
Flat
1.37600
TP
CLOSING
1.38330
Entry Price
1.39100
SL
U.S. Consumer Price Index (CPI) inflation picked up again in August, with headline CPI rising to 2.9% year-over-year while core CPI held steady at 3.1%. The recent relief from falling gasoline prices is being offset by renewed price pressures in housing and food costs. At the same time, consumer goods such as electronics and clothing are climbing in price as the tariffs imposed by the Trump administration begin to filter through to consumers’ wallets.
Money markets in the U.S. have now fully priced in three quarter-point rate cuts from the Federal Reserve (Fed) before year-end. The Fed is widely expected to deliver an initial 25 basis point cut at its policy meeting next week, with markets also fully anticipating two additional rate cuts at the Federal Open Market Committee (FOMC) meetings scheduled for October and December.
Adding to the softening tone, initial jobless claims for the week ending September 6 jumped to 267K, far above the consensus forecast of 235K and notably higher than the prior reading of 237K. This sharp rise underscores renewed weakness in the labor market, which could reinforce the case for the Fed to act sooner rather than later.
According to CME’s FedWatch Tool, interest rate futures traders are fully pricing in three rate cuts by year-end. A 25 basis point cut is viewed as virtually certain at the upcoming September 17 FOMC meeting, while the probability of additional rate cuts on October 29 and December 10 is now hovering near 95%.
Meanwhile, Canadian money markets remain firm, with Canadian bond yields easing midweek and helping to provide some support to the Loonie on Thursday. Still, Canada’s economy appears to be in the early stages of a recession, and economic indicators continue to point toward further monetary easing from the Bank of Canada (BoC) on the horizon.
Canada’s Ivey PMI dropped sharply from a robust 55.8 in July to 50.1 in August, just above the stagnation threshold, signaling a marked slowdown in economic activity. This deterioration has intensified concerns about the resilience of Canada’s economy and is increasing the likelihood of a dovish shift from the BoC.
Technical Analysis
USDCAD is currently shaping a head-and-shoulders formation, with the pair in the process of building the second shoulder. Depending on how this pattern develops, it can be either bullish or bearish — but in this case, the setup leans bearish. If USDCAD fails to break above the right shoulder and post a new higher high, price could resume lower, with the next key support seen near 1.3758.
The 100-period and 200-period moving averages on the 4-hour chart are positioned at 1.3818 and 1.3802 respectively. A clear break below these levels could accelerate downside momentum and confirm the start of a broader corrective move. Meanwhile, the RSI recently peaked at 68, just shy of overbought territory, suggesting that momentum could soon reverse. A new leg lower from current levels would align with this overextension, whereas a breakout above the right shoulder would invalidate the bearish setup and open the door to further gains.
Trading Recommendations
Trading direction: Sell
Entry price: 1.3833
Target price: 1.3760
Stop loss: 1.3910
Validity: Sep 19, 2025 15:00:00
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