USDCAD is forming a head and shoulders pattern on its 4-hour forex time frame, indicating that a reversal from the previous uptrend might take place.

For now, price is still testing the neckline of the formation near the 1.0950 minor psychological support area.

Stochastic is moving up from the oversold zone, suggesting that a bounce might take place. MACD is giving the same signal, which means that sellers aren’t ready to push USDCAD down for now.

However, a break below the neckline of the head and shoulders pattern might mean a 150-pip selloff, which is the same height as the chart formation. This could take price down to the 1.0800 major psychological support zone.

Shorting below the 1.0950 level and aiming for 1.0800 with a tight stop around 1.1000 could yield a high return on risk for a short-term trade. Event risks for this trade include Canadian CPI and wholesale sales releases in today’s New York trading session.

By Kate Curtis from Trader’s Way