The announcement of the Fed wanting to maintain average inflation of 2% over time caused major volatility In various markets and ultimately sent saw the Canadian dollar gain on the U.S. dollar.
On the 4 hour chart above we can see price fell short of the third touch of the trend line but structure was broken to the downside where a lower low was formed. Paying attention to the candle stick closures, there was a hammer printed with a sharp rejection of the 1.30450 region which will now be an important level to break if this pair continues to the downside shown by the upward pointing arrow.
Dropping down to the 1 hour chart, we can see by looking at the upper highlighted region how after those few volatile candles, support turned into resistance and price reversed from the 1.31350 area shown by the downward pointing arrow. Plotting the fib tool we can see that there has already been a rejection off of the 61.8% level but a more attractive risk to reward would be to wait for the 3rd touch of the trend line which lines up nicely with the previous support as well as the 78.6% fib level.
The Fed is aiming to keep inflation rates as low as possible for as long as possible until the labour market begins to make a recovery. Once a recovery in the labour market takes place, it is expected that the inflation rate will be raised in order to keep averaged it at 2% over time. It will be important to follow inflation indicators such as the CPI, PPI as well as the Unemployment Claims which may provide insight into what could possibly happen to the inflation rate in the future.
Remember to always wait for candlestick confirmation before executing any trades and always stick to your personal trading plan.