- Most market players were waiting for Fed commentary
- USD/CAD dropped below 1.3000 at one stage
- Rate increase expected in months to come
The forex trading environment in the US remained less than ideal on Wednesday as traders eagerly awaited the Fed’s official commentary. Most market players were expecting the target rate to remain unchanged at between 1.75% and 2%, and the CME FEDWatch Index placed the probability of rates being held static at 98.5%.
After the announcement, traders are analyzing its wording and technical details. They will mainly be looking at two issues: a commitment to increase the target rate to between 2% and 2.25% at next month’s meeting and a clear statement about the US/China trade war and its effect on inflation and economic growth.
Amid a chaotic WTI crude oil market, the CAD has done well against the USD over the last three days, with the USD/CAD rate dropping below 1.3000. Buyers are now stepping in to defend the 1.3000 level.
If the present intra-day low of 1.2975 can remain unchallenged until closing, a short trade from the 38% Fibonacci retracement could be on the cards for Thursday, particularly if the Fed announcement favors the status quo.
UPDATE: The Fed has indeed decided to leave interest rates the same but remains committed to its previous time frame regarding rate increases for the rest of the year.
The Fed’s Open Market committee pointed out that economic activity has been “rising at a strong rate” and that unemployment has remained low. It added: “Household spending and business fixed investment have grown strongly.”
Although they are not increasing rates right now, the committee repeated its earlier stance of more gradual rate increases in its latest policy benchmark, identifying next month’s FOMC meeting for this year’s third rate increase.