The Dollar Dropped as Riskier Assets Surge in Wake of Fed Decision

Key Insights

• The dollar moved lower following the Fed meeting. 
• Treasury yields dropped during Powell’s press conference.
• The Fed raised interest rates by 50-basis points.

USD/CAD dropped sharply in the wake of the Fed meeting and during the Fed Chair Press Conference. The Fed finished its 2-day monetary policy meeting on Wednesday, raising rates by 50-basis points and telling the markets it will continue to monitor the market situation.

The Fed will begin to reduce its balance sheet on June 1. The move was expected and is considered quantitative tightening.

The Federal Reserve will first lead the balance sheet run-off by 47 billion and 95 billion in three months. Household and business spending remain strong. The invasion of Ukraine likely weighed on economic activity. The Fed said that the lockdowns in China would likely lead to additional supply chain disruptions.

Technical Analysis

The USD/CAD reversed and turned lower on Wednesday. It hit 2022 highs and consolidated earlier in the week. Resistance is seen near the May high of 1.2920. Support is seen near the 20-day moving average of 1.2685. the 20-day moving average crossed above the 50-day moving average, which means that a medium-term uptrend is now in place.

Short-term momentum turns negative as the fast stochastic might have a crossover sell signal. Medium-term momentum is positive as the MACD line generated a crossover buy signal. The trajectory of the MACD is in positive territory but decelerating, which points to consolidation.