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US Dollar Short Squeeze, GBP/USD Fights for Support, USD/CAD Bottom?

US Dollar Short Squeeze, GBP/USD Fights for Support, USD/CAD Bottom?

Justin McQueen, Analyst

USD, FED Price Analysis & News

  • FOMC Remaining Patient
  • USD Short Squeeze Tests G10 FX Ranges

FOMC Main Event: Policy expected unchanged, eyes on statement and Powell Presser

The USD is holding onto 90.50 following Friday’s adjustment in positioning. The main event this week is the FOMC monetary policy meeting and while no policy changes are expected, the market focus will be on the Fed’s rhetoric in light of the (anticipated) jump in inflation. Reports from WSJ this morning pointed to the FOMC looking set to shift towards an earlier rate hike than previously assumed, which given that only two members are needed to move the median dot plot projections to signal a 2023 rate hike, is not surprising.

With the Fed likely to maintain a patient approach, there is a hawkish risk stemming from potentially subtle changes in the statement. Therefore, it will be key to watch out for any changes in the rhetoric surrounding the guidance of “SUBSTANTIAL FURTHER PROGRESS”, which has become a condition that needs to be reached before the Fed considers taper talks. The removal of the word substantial, as subtle as it may be, could be one of the first signs of gearing towards the long road of tapering assets. Should this play out, the USD can be expected to find a bid alongside side US rates.

G10 FX Ranges Facing a Test After USD Short Squeeze

G10 FX has been far from exciting in recent weeks, with ranges being maintained in major pairs. That said, in light of a short squeeze in USD positioning, some ranges are now being tested.

GBP/USD: Range lows being tested as bulls look for 1.4070-80 to hold. However, failure to keep GBP/USD afloat puts the pair at risk of dropping to 1.4000. Topside resistance remains at 1.4200.

GBP/USD Chart: Hourly Timeframe

US Dollar Short Squeeze, GBP/USD Fights for Support, USD/CAD Bottom?

Source: Refinitiv

USD/CAD: The rally in the USD prompted USD/CAD to break above 1.2145, a level that has capped upside for a month. Above here puts the 1.2200 handle back into focus, however, with oil prices continuing to edge higher, USD/CAD may struggle to make notable headway above 1.2200.

USD/CAD Chart: Hourly Timeframe

US Dollar Short Squeeze, GBP/USD Fights for Support, USD/CAD Bottom?

Source: Refinitiv

USD/CAD (Inverted) vs Brent crude oil

US Dollar Short Squeeze, GBP/USD Fights for Support, USD/CAD Bottom?

Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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