The USDCAD came under heavy selling pressure yesterday after U.S. CPI data came in much weaker than expected, triggering a decisive technical breakdown. The pair fell below the key support zone between 1.4125 and 1.4143, moved well beneath the 100-hour moving average, and broke an upward-sloping trendline that had guided the rally since May 1.
One of the more encouraging developments for sellers was what happened after the initial break. The subsequent corrective bounce stalled right at the underside of the broken trendline, where fresh sellers stepped back in. That successful retest confirmed former support had turned into resistance and gave bears the confidence to extend the move lower.
The decline continued through the Asian session, with the pair reaching a low of 1.4040. However, the move stopped just ahead of the next major downside target near the mid-June highs around 1.4020, prompting a modest rebound.
On the 5-minute chart, that recovery retraced to the 50% midpoint of the most recent decline at 1.40768, where sellers once again took control. The softer-than-expected U.S. PPI report added to the bearish tone, helping push the pair back lower. Over the last several minutes, price has oscillated around the 100- and 200-bar moving averages on the 5-minute chart. A sustained move back below those averages would increase the likelihood of another test of today’s low at 1.40387, with a break opening the door toward the 1.4020 target.
For sellers, the key near-term objective is to keep price below the 38.2% to 50% retracement zone between 1.40678 and 1.40768. A move above that resistance area would weaken the immediate bearish momentum and suggest the correction is gaining traction.
The broader trend has still been higher since May 1, so additional downside follow-through is needed to shift the longer-term technical outlook. Even so, the recent break of key support and the failure of corrective rallies are beginning to expose cracks in that bullish structure. For now, 1.4068 and 1.4077 remain the key resistance levels that sellers need to defend to maintain near-term control.
Fundamentally, the Bank of Canada rate decision is forthcoming fall by the comments and expectations that go along with it.
This article was written by Greg Michalowski at investinglive.com.
