The USDCAD has been trading within well-defined ranges since peaking at the end of June. The first “box” was established between 1.41297 and 1.4243. On July 14, the pair broke below that range and has since been confined to a second box between 1.3990 and 1.41297.
Price action inside both ranges has been relatively orderly, with the 100-hour and 200-hour moving averages serving as a reliable barometer of short-term control. Trading above those averages has favored the buyers, while trading below them has kept the sellers in charge.
On both Tuesday and Wednesday, buyers attempted to push the price above the 200-hour moving average, but each rally attracted only modest follow-through buying. Yesterday, after another failed break above the 200-hour MA (currently at 1.4056), sellers regained control. The decline off of that failure accelerated as broad U.S. dollar selling emerged, pushing the pair below the 100-hour moving average at 1.4037. The selloff initially found support near the swing area at 1.4003.
Today, that support gave way during the late European morning/early North American trading, with the pair extending down to last week’s low at 1.3990. Buyers have stepped in around that level, helping lift the price back toward 1.4000, and for now the pair remains inside the current trading box.
So what now? Needless to say, the 1.3990 level needs to be broken to get the price out of the box. Having said that, the next key technical level is not far away at the 38.2% retracement of the May-to-June rally, which comes in at 1.3981. Following a strong trending move, that retracement often serves as an important dividing line. A decisive break below 1.3981 would give sellers greater control and increase the odds of a deeper correction. If, however, buyers continue to defend the level, the current decline is more likely to remain a normal, garden-variety correction within the broader trend. In other words, don’t underestimate the importance of 1.3981 today and in the sessions ahead.
For buyers, the roadmap is straightforward. The first hurdle is to reclaim the 100-hour moving average at 1.4037, followed by the 200-hour moving average at 1.4056. A move back above both would shift the near-term bias back in favor of the buyers and put the upper end of the current trading box back into focus.
This article was written by Greg Michalowski at investinglive.com.