USDCAD slides for a fourth day; 100-day MA bounce sets up key tests

Since last Wednesday, when the USDCAD ran into resistance around the October 9 peak, sellers have been driving the pair lower. The inability to push higher opened the door for bearish pressure, and they have made the most of it.

Four straight sessions have now ended lower for the pair. It has dropped roughly 265 pips from the Wednesday peak of 1.42984 to today's low of 1.4033. Over a short span, that is a significant decline, and each technical support level that has given way has strengthened the bearish case.

Today, however, the dip to the 100-day moving average brought in a measure of buying. The key is whether that first reaction can develop into a more substantial rebound.

Sellers have knocked down downside obstacles in succession.

On the descent, the USDCAD has slipped beneath the 1.41297-1.4153 swing region and then through the 38.2% retracement, which sits at 1.40818.

These breakdowns carry weight. Once a price drops under a well-defined support zone and holds there, traders who had been buying that support need to reassess. Sellers, meanwhile, gain a fresh reference point for placing risk on any bounce.

That dynamic has helped sustain the downward pressure.

The drop today encountered another key test at the 100-day moving average of 1.4040. For a short time, the price dipped under that line, touching 1.4033, but the move did not hold. Buyers then lifted the pair back above the average.

Sellers got their chance underneath the 100-day moving average. On this first try, they were unable to keep the price that low.

Buyers have gained a toehold, though much remains to be done.

After such a steep slide, climbing back above the 100-day moving average is a mild technical plus for buyers. It also supplies a close-by level against which to gauge risk.

As long as price holds above 1.4040, the corrective rebound has room to build. If it falls back under that level and remains beneath it, the early buying signal begins to diminish.

The bounce has so far run into resistance around 1.40566, which was a correction low back on September 23. That marks the first barrier to the upside. A push above it would signal further buyer progress, though the bigger challenge lies at 1.40818, the previously broken 38.2% retracement.

In my view, that is the point at which traders betting on further losses would begin to feel uneasy.

Getting back above 1.40818 would place the pair beyond a retracement marker that shaped the recent downtrend. Should buyers push above it and hold, the odds of a deeper recovery would improve.

Further upside objectives are:

• 1.41305: The following upside objective, situated close to the lower edge of the damaged swing zone.
• 1.4153: The falling 100-hour moving average, which also corresponds to the upper edge of that same swing zone.

When those two factors converge around 1.4153, it becomes a significant obstacle should the rebound gain traction.

A fresh drop beneath 1.4040 would leave the sellers in charge.

Unless buyers can take back those higher areas, the current bounce is only a countertrend move inside the broader decline.

If the price falls back beneath the 100-day moving average at 1.4040, focus would turn to today's low of 1.4033. A break under that level would open the way toward the 50% midpoint at 1.40149.

Underneath the midpoint, market participants would set their sights on the 1.3950 region, the site of the 61.8% retracement of the rally off the August low.

The prevailing trend still favors the sellers. What they require now is proof that they can hold a break beneath the daily moving average and push on to those lower objectives.

A trading takeaway: when a break fails, that is a caution sign. The significance of that failure depends on what follows.

The broader lesson is that support that does not hold can set up a bounce, yet buyers still have to show they can regain command.

The move back above the 100-day moving average shows that sellers met with buying demand. It offers traders a well-defined marker to watch. Still, it does not wipe out the broken support levels above or the force behind the four-day slide.

Treat the rebound as a series of stages. The first stage is staying above 1.4040. Next comes a move beyond 1.40566. Taking back 1.40818 would offer firmer proof that the correction can extend.

These stages allow traders to track progress and manage risk without needing to call the precise low.

At present, buyers are taking a limited shot. Remaining above the 100-day moving average keeps that effort viable. A climb above 1.40818 would lend it greater credibility. In the meantime, sellers have grounds for confidence, but they still need to complete the move beneath support.