USD/CAD Breakdown Incoming?

#USD/CAD#

From a technical perspective, USD/CAD continues to show a clear bearish structure.
After reaching the 1.4220–1.4240 area, the pair started developing a sequence of:
Lower Highs → Lower Lows → Lower Highs → Lower Lows

The rejection from the 1.4090–1.4130 supply zone reinforced the bearish structure and pushed the market back below the psychological 1.4000 level.
Price is now trading around 1.3890, meaning a significant part of the bearish move has already taken place.
For this reason, I am not looking to sell aggressively at current levels.
Instead, I am monitoring the 1.3900–1.3930 area, where a technical imbalance/FVG could provide a potential retracement zone.
If price returns into this area, I will look for bearish confirmation before considering continuation lower.

COT DATA — CANADIAN DOLLAR
Non-Commercial positioning currently stands at:
Long: 12,854
Short: 186,216
Net Position: -173,362
Speculators therefore remain extremely net short CAD.
During the latest reporting period:
Long positions: -660
Short positions: -6,393
This means speculative traders reduced their CAD short exposure significantly faster than their long exposure.
In my view, this could indicate the beginning or continuation of CAD short covering.
If this dynamic persists:
CAD Strength → USD/CAD Weakness

COT DATA — US DOLLAR INDEX
The US Dollar positioning adds another interesting piece to the puzzle.
Non-Commercial traders remain clearly net long USD:
Long: 32,651
Short: 11,242
Net Position: +21,409
The USD remains structurally net long, but speculative bullish exposure has marginally decreased.
Both marginal developments are compatible with further downside pressure on USD/CAD.

RETAIL SENTIMENT
63% of traders are LONG USD/CAD
while only:
37% are SHORT
Since I use retail sentiment primarily as a contrarian indicator, this positioning reinforces my bearish bias.

SEASONALITY
August seasonality is less decisive.
Longer historical windows provide mixed signals, while the more recent seasonal data — particularly the 2-year window — shows stronger downside tendencies for USD/CAD.
For this reason, I consider seasonality a secondary confirmation factor rather than an entry trigger.

MY TRADING SCENARIO
I am not interested in chasing USD/CAD lower around current prices.
The move is already extended and price is approaching an important higher-timeframe demand area.
Instead, my preferred scenario would be a retracement toward:

🎯 1.3900–1.3930

From there, I want the market to confirm my thesis.
I will be watching for lower-timeframe bearish confirmation before considering any continuation setup.
If sellers regain control, the downside levels I am monitoring are:

TP1 → 1.3840–1.3850
TP2 → 1.3770–1.3780
Main Target → 1.3718

A sustained structural recovery above the 1.4000–1.4050 region would significantly weaken my bearish thesis and force me to reassess the setup.