USD/CAD Moved Lower After the Fed Announced Less Aggressive Tightening 

Key Insights

• Gold prices edged higher over concerns about rising inflation.
• Treasury yields surge following the FOMC meeting.
• Oil prices extended gains as EU plans for a Russia embargo countered concerns over Chinese demand.

USD/CAD pulled back following the less hawkish Fed meeting despite facing bullish momentum. The dollar recovered after facing steep losses yesterday. Benchmark yields extended gains after the 50-basis point rate hike. The ten-year treasury yield rallied to 3.09% following the FOMC meeting. 

Gold prices traded higher on concerns over spiraling inflation. Oil prices rallied as the EU stated its plan for an embargo on Russian oil. European sanctions offset the uncertainty over Chinese demand due to Covid lockdowns. 

The FOMC hiked rates by 50-basis points at the meeting on Wednesday, but Fed Chair Powell made clear that a 75-basis point move was unlikely at the next meeting. This caused the dollar to ease, while bond yields extended gains.

However, Powell stated that the main goal is to rein in inflation, which gives the dollar and yields greater upside momentum. 

Initial jobless claims rose to 200,000 from the previous 181,000. Productivity fell by 7.5% in the first quarter. However, a tightening labor market will keep inflation elevated.

Technical Analysis

The USD/CAD traded lower after the Fed meeting yet maintains a positive long-term outlook. The pair has a bullish outlook with Fed tightening acting as a tailwind for the dollar. USD/CAD might retest March highs near 1.29, which would remove the short-term downward pressure seen from the FOMC meeting.

Resistance is seen near the March 8th high near 1.290. Support is seen near the 10-day moving average of 1.280. A pullback to the 10-day moving average is an opportunity for investors to buy the dip.

Short-term momentum is positive as the fast stochastic had a crossover buy signal. Medium-term momentum is positive as the MACD line generated a crossover buy signal.

This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day MA of the MACD line). The trajectory of the MACD is in positive territory, which reflects an upward trend in price movement.