June 17, 2021 14:32:58

The dollar continues to firm broadly after the Fed’s hawkish fireworks. The FOMC’s greater conviction around rates rising sooner than expected means tapering is on the horizon too. Consensus may have been wrong on yesterday’s call, but the Fed is effectively just siding itself with market thinking that less bond purchases will commence later this year with the first hike in early 2023.

Naturally, the dollar has shot higher with the short covering rally stretching further today. It is rare to see follow through price action the day after a Fed meeting, so there may be some retracement as price action overextends.

GBP/USD sitting on support

We wrote at the start of the week about how breakouts from range trading are usually violent and with a series of moves under 1.41, a move lower in cable was more likely. We certainly got that last night with prices trading sharply lower through the upward trendline around 1.4050 and the 50-day SMA below here at 1.4005. The pair is now sitting on the 100-day SMA and loss of support here could trigger another swift lurch lower to 1.38 where the start of May support lies. Closest resistance is the 50-day SMA which aligns with today’s high.

USD/CAD bottomed for now

While CAD fundamentals remain very solid, with recent high inflation data adding to the mix, USD/CAD squeezed higher last night through the 50-day SMA and onto a peak of 1.2346 made earlier in today’s session. This is not far off resistance at the mid-March low of 1.2365 with the next level above being the 100-day SMA at 1.2420. The pair is currently trading around the 50% retrace of the April/May fall and the RSI is nearing 70 which points to being overbought, at least in the near-term. Support sits at the 50-day SMA at 1.2235 so this area could be an opportunity to load up longs for another push higher to the mid-March low.  

AUD/USD reaches 200-day SMA

Today’s stellar aussie jobs data halted the Fed selloff briefly as the market eyes up the next RBA meeting on 9 July after Governor Lowe’s broadly upbeat speech overnight.  The pair is now supported by a zone of medium-term support around the 0.7570/30 area with the 200-day SMA residing just below here at 0.7550. Initial post-FOMC reaction in FX has reversed in recent times, though last night’s meeting does seem as though it is the start of a slow process in policy adjustment. Any countertrend move will need to take out the early June lows around 0.7643 to confirm that bearish momentum has subsided after yesterday’s range breakout.