USD/CAD trades on volatility and tests 20-day EMA after FOMC decision

• USD/CAD plunged below the 1.3700 figure, trades volatile in the 1.3670-1.3740 range.
• The Federal Reserve raised rates by 25 basis points, as expected by analysts.
• Traders kept an eye on Federal Reserve Chairman Jerome Powell’s press conference.

He USD/CAD it plunged towards its daily lows at 1.3678 after the US Federal Reserve decided to raise rates by 25 basis points. The so-called “dot chart” was almost unchanged compared to December’s Summary of Economic Projections (SEP), meaning another 25 basis point rise is expected. Therefore, USD/CAD is trading volatilely around 1.3680-1.3720, ahead of Fed Chairman Powell’s press conference.

Fed monetary policy decision

In their decision, Federal Reserve officials decided to raise rates by a quarter of a percentage point and acknowledged the recent turmoil in financial markets, which caused the collapse of two regional banks. However, the US central bank commented that the US banking system is sound and resilient.

Apart from this, the monetary policy statement was in line with expectations, with the Fed stressing that inflation is too high and the labor market is too tight. In addition, the reduction of the financial balance would continue as planned in May, reiterating that the Committee “is firmly committed to returning inflation to its target of 2%.”

However, it must be said that the phrase “continued increases as appropriate” was removed from the March monetary policy statement.

Summary of Fed economic projections

The Summary of Economic Projections (SEP) has remained practically the same, with few changes. The dot charts, which represent Federal Reserve officials’ interest rate forecasts, have held at 5.10%. The real GDP forecast for this period has been revised slightly downwards, from 0.5% to 0.4%, while the Unemployment Rate forecast has been revised slightly upwards, from 4.5% to 4.6%. The Federal Reserve’s preferred inflation indicator, core PCE, would stand at 3.6%, compared to 3.5% in the December SEP report. For its part, general inflation is estimated at 3.3%, compared to 3.1% in the previous SEP report.

USD/CAD Reaction to Headlines

USD/CAD plunged towards its daily low at 1.3678, below the daily pivot point at 1.3700. A further drop below the S1 daily pivot at 1.3658 would pave the way to 1.3600, but firstly USD/CAD needs to break the March 21 daily low at 1.3643. Once this happens, 1.3600 will be in play.