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Andreas Zanin
Analysis | June 17, 2021

USD Outlook Reaction to the Fed

In our preview of the Fed we noted it was unlikely the Fed could be more dovish than the market expected Click here to View  We were expecting a USD rally which has now started and expect more strength…

“The Federal Reserve on Wednesday considerably raised its expectations for inflation this year and brought forward the time frame on when it will next raise interest rates.” (CNBC)

The Fed gave no indication as to when it will begin cutting back on its bond-buying program, but Fed Chairman Jerome Powell acknowledged that officials discussed the issue at the meeting. In terms of how the Fed view rate hikes going forward

We have two rate hikes projected for 2023 and a significant number of members see a hike in 2022: Distribution of Federal Reserve projections for midpoint of Federal funds target range (%) for year-end 2022 and 2023; number of participants:

The majority view coming into the meeting was the Fed would be dovish not discuss stimulus or change their projections.  On this view speculators sold the USD hard and as the the TME note the majority loaded into a major support level and there are now getting hit on stop:

USD Going Up Pair to watch USD/CAD

the USD has more upside against all other major currencies but which is the best to sell against the USD?

We noted in a recent post, the CAD was the strongest major against the USD in the last few months and speculators had built up their biggest long CAD Position in over a year and the USD should rally. We have seen some strength and now expect more upside -we have major support at the 1.2200 level and the size of the speculative short position points to a USD rally up to 1.2600 to correct its oversold condition.

 

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