he USDCAD sellers have been steadily pushing the pair lower since last Wednesday, when the price stalled near the October 9 high. That failure to extend higher gave sellers their opening, and they have taken advantage.
The pair has now declined for four consecutive days. From Wednesday’s high at 1.42984 to today’s low at 1.4033, the price has fallen approximately 265 pips. That is a sizable move in a relatively short period, with a series of broken technical levels giving sellers more confidence along the way.
However, today’s test of the 100-day moving average has attracted some buying interest. The question now is whether buyers can turn that initial response into a larger corrective move.
Sellers have been clearing the downside hurdles
The move lower has seen the USDCAD break below the swing area between 1.41297 and 1.4153, followed by the 38.2% retracement at 1.40818.
Those breaks matter. When a market moves below an established support area and stays below, buyers who leaned against that area are forced to reconsider. At the same time, sellers have another level against which to define their risk on a rebound.
That process has helped keep the downside momentum moving.
Today, the decline reached another important hurdle: the 100-day moving average at 1.4040. The price briefly broke below that level, reaching 1.4033, but could not sustain the break. Instead, buyers pushed the pair back above the moving average.
The sellers had their shot below the 100-day moving average. On the first attempt, they could not keep the price there.
Buyers have a foothold, but there is work to do
The recovery above the 100-day moving average gives buyers a modest technical positive after the sharp decline. It also gives them a nearby reference point for risk.
Stay above 1.4040, and there is room for the corrective move to develop. Move back below—and stay below—and that initial buying response starts to lose its significance.
So far, the rebound has stalled near 1.40566, a prior corrective low from September 23. That level is the first upside hurdle. Getting above it would show buyers are making additional progress, but the more important test comes at the broken 38.2% retracement at 1.40818.
For me, that is the level that would start to make sellers looking for more downside uncomfortable.
A move above 1.40818 would put the price back above a retracement level that helped define the recent bearish move. If buyers can get above and stay above, it would increase the potential for a larger recovery.
The next upside targets would include:
- 1.41305: The next upside target, near the lower boundary of the broken swing area.
- 1.4153: The falling 100-hour moving average, which also aligns with the upper boundary of that swing area.
That combination near 1.4153 would make it an important hurdle if the recovery gathers momentum.
A renewed break below 1.4040 keeps sellers in control
Until buyers reclaim those higher levels, the rebound remains a correction within the recent move lower.
A move back below the 100-day moving average at 1.4040 would shift attention to today’s low at 1.4033. Break that low, and the door opens for a test of the 50% midpoint at 1.40149.
Below the midpoint, traders would look toward the 1.3950 area, where the 61.8% retracement of the move higher from the August low is located.
The sellers still have the stronger recent trend. What they need now is confirmation that they can sustain a break below the daily moving average and extend toward those next targets.
Trading lesson: A failed break is a warning. Follow-through determines its importance.
An important lesson here is that a failed break of support can create an opportunity for a rebound, but buyers still need to prove they can take back control.
The recovery above the 100-day moving average tells us that sellers encountered buying interest. It gives traders a clearly defined level to monitor. However, it does not erase the broken support levels overhead or the momentum behind the four-day decline.
Think of the recovery in steps. Holding above 1.4040 is the first step. Getting above 1.40566 is another. Reclaiming 1.40818 would provide stronger evidence that the correction has room to run.
Those steps help traders measure progress and define risk without having to pick the exact bottom.
For now, buyers are making a modest play. Staying above the 100-day moving average keeps that play alive. Getting above 1.40818 would give it more credibility. Until then, sellers have reason to remain confident, but they still need to finish the job below support.
This article was written by Greg Michalowski at investinglive.com.