The USDCAD has moved higher following the FOMC rate decision, breaking above a cluster of important technical levels. That has shifted more control to the buyers, but the next step is holding the breakout and working through resistance near the 1.4000 level.
Before the decision, the price was trading between the 200-bar moving average on the four-hour chart at 1.3888 and the 100-day moving average at 1.3939. The post-FOMC move carried the pair above the 100-day moving average, the 38.2% retracement at 1.3931 and the swing area between 1.3948 and 1.3966.
That swing area is now the first key support. Former resistance becomes support after a break, and staying above 1.3948 to 1.3966 would keep the buyers in control.
What buyers need to do
Buyers now need to get above and stay above the next resistance area between 1.3990 and 1.4003. The 50% retracement of the decline from the June high is also in that area at 1.39915.
The combination of the swing area, the retracement level and the natural 1.4000 level makes this an important decision zone.
If buyers can extend above 1.4003 and stay above it, the next upside targets become:
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The 61.8% retracement at 1.4052.
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The higher swing area between 1.4117 and 1.4149.
What sellers need to do
Sellers leaned against the 50% retracement and the 1.3990 to 1.4003 swing area on the initial test. That gives traders a level where risk can be defined and limited.
To take back more control, sellers first need to push the price below the 1.3948 to 1.3966 support area. A break below that zone would weaken the bullish momentum and put the 38.2% retracement at 1.3931 and the 100-day moving average at 1.3939 back in play.
A move below those levels would open the door toward the four-hour 200-bar moving average at 1.3888. That moving average helped define the lower side of the pre-FOMC range.
Trading education: Former resistance becomes support
When price breaks above a resistance area, that same area often becomes support on a pullback. The break is the first step. Staying above the old resistance confirms that buyers are retaining control.
In this USDCAD setup, the 1.3948 to 1.3966 swing area was resistance. After the move above it, traders can now use the same zone to judge whether the breakout is holding or failing.
As I explain in my book Attacking Currency Trends, traders should define the bias and then identify the level that would change that bias. Above the support area, the buyers remain more in control. Move back below it, and the bullish breakout starts to lose its grip.
Technical roadmap
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Bullish: Stay above 1.3948 to 1.3966 and break above 1.4003. That would open the door toward 1.4052, followed by 1.4117 to 1.4149.
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Bearish: Move below 1.3948 and then back below the 1.3931 to 1.3939 support cluster. That would weaken the breakout and shift the focus toward 1.3888.
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Near-term battle: Buyers have more control, but they still need to get above and stay above the 1.3990 to 1.4003 resistance area.
The price action at those levels will provide the next clue.
This article was written by Greg Michalowski at investinglive.com.