Breakdown of the latest developments on the global exchanges
Dec 16, 2021, 10:49 AM GMT

The Dollar Pummelled by FED's December Policy Decision, USDCAD Dives

The Dollar Pummelled by FED's December Policy Decision, USDCAD Dives

The monetary policy decision of the Federal Reserve exacerbated the dollar's struggles, speeding up the trend reversal on the EURUSD, which was examined in greater detail in our latest comprehensive analysis of the pair.

At its highly anticipated December policy meeting, the Federal Open Market Committee (FOMC) expectedly decided to maintain the near-negative Federal Funds Rate unchanged at 0.25 per cent. Jerome Powell and his colleagues also decided to reduce the pace of the bank's asset purchases, which prompted a dollar selloff.

USDCAD 2H Price Chart

As can be seen on the 2H chart above, the price action of the USDCAD broke below the ascending channel in the hours following FED's policy decision. The decisive breakdown also managed to penetrate below the 38.2 per cent Fibonacci retracement level at 1.28117, further elucidating the robust bearish bias.

This can also be inferred by the declining histogram of the MACD indicator. Moreover, the 50-day MA (in green) has recently adopted a new role of a floating resistance.

Given the steep angle of the newly emerging downtrend, the price action is likely to head towards the 61.8 per cent Fibonacci at 1.27336 next. However, it would first have to test the intermediate support level at 1.27500. The latter is underscored by the crossover between the 100-day MA (in blue) and 200-day MA (in orange).

If the price action manages to break the 61.8 per cent Fibonacci as well, its next target would likely be the previous swing low at 1.26100.

FED's newly adopted hawkish outlook

The recently recorded inflation growth, which continues to be caused by pandemic-related supply and demand imbalances, prompted the FED to adopt a more hawkish outlook:

"In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities. Beginning in January, the Committee will increase its holdings of Treasury securities by at least $40 billion per month and of agency mortgage-backed securities by at least $20 billion per month."

Meanwhile, in November, headline unemployment fell to its lowest level since the beginning of the pandemic, despite a noticeable decrease in the pace of jobs creation.