Daily Market Recap – DXY Greenback soars after FOMC meeting

Yesterday, the FOMC left rates, the pace of asset purchases, and its stance unchanged, in line with expectations, yet the meeting was decidedly hawkish. The “dot plot” of interest rate projections showed that 13 of the 18 FOMC participants (up from 7 of 18 in March) expect interest rates to rise by the end of 2023, with 11 expecting two or more hikes by that date.

Growth and inflation forecasts were revised upward for this year, but little changed in 2022 and 2023, consistent with recent comments by Fed officials that higher inflation is likely transitory.

Fed Chairman Jerome Powell explained that the change in the dot plot reflected the increased confidence of FOMC participants in their growth and inflation forecasts, although he sought to downplay its significance.

The increased concern of FOMC participants about the risks of higher inflation is the real driver of the move toward less accommodative policy. While the timing of the first-rate hike may have been moved up, there appears to be little opportunity to accelerate the timetable for reducing asset purchases.

Powell said that it was at this meeting that the FOMC began “talking about talking about tapering asset purchases.”

The scenario remains that the FOMC will formally kick off the discussion of tapering asset purchases in September and announce in December that the tapering of asset purchases will begin in the first quarter.

The surprise of an earlier-than-expected hike announced yesterday supports the dollar in the short term, but this inflation may be temporary and the primary medium-term trend on the greenback remains bearish.

Yesterday's near bullish candle that broke resistance at 90.63 is a reversal signal that validates a rounded bottom pattern. The greenback has already retraced 61.8% of the April-May downtrend. If it manages to continue its advance beyond this ratio then the dollar could return to 93.50, the starting point of the last downward wave.

(Chart Source: Tradingview 17.06.2021)

The recovery scenario would be invalidated below the 200-period moving average and the 38.2% Fibonacci retracement on 91.00.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.