Breakdown of the latest developments on the global exchanges
Aug 19, 2021, 10:25 AM GMT

Dollar Rises on Investors' Expectations of FED Tapering

The July FED meeting minutes prompted renewed expectations of FED tapering. The dollar rises following the release of the report

Yesterday's FED Minutes catalysed another bullish swing for the greenback, which continues to rally against all majors. Check out our comprehensive analyses of the GBPUSD or EURUSD for more information on the current market sentiment.

Тhe FED published the Minutes from the last meeting of the FOMC yesterday, which underlined investors' expectations of FED tapering sooner than initially forecasted.

The dollar continues to strengthen as the markets start to gradually brace for the eventual scaling back of FED's asset purchasing programs. Dialling back the scope of QE is good news for long term dollar bulls.

The price action of USDCAD continues to rise on investors' expectations of FED tapering due to robust recovery

Yesterday's report prompted a dollar rally against the Canadian dollar, too, as can be seen on the 4H chart above. The upswing commenced following a breakout of the price action above the Pennant's upper boundary.

This was then followed by a penetration above the 23.6 per cent Fibonacci retracement level at 1.26191 (as measured against the broader uptrend on the daily chart). The MACD indicator underpins the steadily rising bullish momentum.

The price action is nearing the psychologically significant resistance level at 1.28000, which served as the last swing peak. Unless a reversal occurs from this major threshold, the price action would be able to head higher towards the 1.272 Fibonacci extension level at 1.29054.

The latest candle appears to be taking the form of a shooting star, which implies a potential correction in the near future. Even still, the broader sentiment remains ostensibly bullish.

FED policy tapering in sight

In the report itself, the FED acknowledged that:

"With respect to the path of net asset purchases, respondents to the Open Market Desk’s surveys of primary dealers and market participants expected communications on asset purchases to evolve gradually […]. Almost 60 percent of respondents anticipated the first reduction in the pace of net asset purchases to come in January, though, on average, respondents placed somewhat more weight than in the June surveys on the possibility of tapering beginning somewhat earlier."

The rationale behind the present dollar rally is quite a straightforward one. Once the FED starts decreasing the money supply in the economy, the value of the dollar would rise parallel to the growth in demand.