USDCAD Slides Below Last Week's Low as Sellers Hold Control

Late last week, the USDCAD pushed upward after U.S. employment numbers proved stronger than forecast and Canadian jobs data came in weaker than expected. From a fundamental standpoint, that combination ought to have underpinned the U.S. dollar against its Canadian counterpart.

The price action, however, delivered a different message, and ultimately it is that price action that holds all the cards.

The advance that followed the jobs data ran out of steam inside a swing zone stretching from 1.38669 to 1.3877. Buyers were given a chance, yet they failed to push through that resistance region and hold on to the gains. That miss served as the initial hint that the bullish fundamental backdrop was not producing persistent demand.

When a rally fails to materialize on news that ought to be supportive, it is a signal traders should not ignore. Frequently, that points to the positive development already being fully reflected in prices, or to bigger sellers taking advantage of the bounce to build short positions.

That failed breakout drove the USDCAD down toward the 200-day moving average, which sits at 1.38343. In the previous session, the pair swung back and forth around that important average before ultimately resolving to the downside. This shifted the longer-range technical posture clearly in favour of the bears.

Today, the bearish push kept going, bringing the currency pair into a swing region that spans 1.3765 to 1.3778. That zone drew some buying interest at first, but the bounce that followed ran into a wall short of the declining 100-hour moving average, now around 1.38138.

This counted as yet another negative signal.

The price stayed under the broken 200-day moving average, and additionally buyers were unable to get up to the falling 100-hour moving average before the sellers stepped back in. The creation of a lower high indicated that the bears remained in charge of the near-term trend.

During North American trading, the pair later turned back down toward the 1.3765–1.3778 swing zone. On this occasion, the support level gave out, and the USDCAD fell to 1.3760, the weakest reading since August 21.

A modest recovery has followed, but the pair is currently attempting to hold beneath or inside the breached swing area. That zone now serves as the main gauge for the short term. As is often the case, former support tends to turn into resistance once it is lost.

For those trading the pair, the technical picture sets out a fairly direct route:

• As long as the pair remains under the 1.3765–1.3778 swing zone, the sellers maintain control and lower prices are the path of least resistance.

• The next significant target is in the vicinity of 1.3732, a level that combines the August swing low with a rising trend line, giving it added technical significance.

• Should 1.3732 give way, the next tradeable zone is close to 1.3710.

• For the bulls to regain a measure of control, a move back above 1.3778 is required first. Beyond that, resistance would come from the 61.8% retracement near 1.3793, with the falling 100-hour moving average around 1.38138 waiting further up.

The strong U.S. jobs figures and soft Canadian employment report may have handed USDCAD buyers what appeared to be a very strong fundamental position. But those buyers were unable to convert that advantage into gains.

At this stage, the technical edge rests with the sellers, and they are holding the better hand.