USD/CAD found a floor last Friday at 1.37315, then gapped higher over the weekend after trade talks between the United States and Canada soured. The deterioration in trade relations fueled upside momentum, lifting the pair back above its 100-hour moving average, its 200-day moving average, and its 200-hour moving average. That reaction fits the pair's profile: with roughly three quarters of Canadian exports bound for the U.S. market, the Canadian dollar—known as the "loonie"—is among the most trade-sensitive major currencies, and it also tends to move with crude oil prices given Canada's role as a major oil exporter.

The advance extended yesterday, with the price breaking above the 38.2% retracement of the decline from the July 28 high at 1.3882. The rally ultimately reached 1.38922.

Today, buyers managed to push the price only to 1.3891—just short of yesterday's high. That failure to extend to a new high, followed by a move back below the 38.2% retracement at 1.3882, gave sellers the go-ahead to drive the pair lower. The price has since fallen to a low of 1.3853 and is now approaching a key cluster of moving-average support between 1.38376 and 1.38430. That zone combines the rising 100-hour moving average, the 200-day moving average, and the 200-hour moving average. Confluences of this kind draw close attention from traders because they compress several trend measures into a single decision point: the 100-hour and 200-hour moving averages gauge the intraday trend, while the 200-day moving average is a widely followed benchmark of the longer-term trend.

What happens next?

The moving-average cluster is now the key short-term barometer for buyers and sellers. And given that the weekend gap came alongside the turn in trade talks, headlines from that negotiation track remain a variable to watch alongside the chart levels themselves.

If the area holds, buyers would retain a chance of restarting the move higher. To do so, however, they would need to reclaim the swing area between 1.3868 and 1.3877, followed by the 38.2% retracement at 1.3882, in order to rebuild the bullish bias. Above those levels, buyers would still have to break through the highs from yesterday and today near 1.3892. The more important upside hurdle remains the 100-day moving average at 1.39136. Ultimately, if buyers are to take firmer control, the price needs to get above that moving average—and stay above it.

Conversely, a break below the moving-average cluster at 1.38376–1.38430 would tilt the short-term bias more firmly in favor of sellers and increase the potential for additional downside momentum.

Source: Investinglive