The two-day FOMC meeting starts today and concludes tomorrow in the evening. The US central bank is largely expected to keep rates on hold and asset purchases unchanged, but investors will pay close attention to comments from Chairman Jerome Powell regarding inflation. The Fed still sees inflation as temporary, despite massive inflationary pressures everywhere - from commodities to used cars or real estate.
Additionally, the Bank of Canada Governor Tiff Macklem is due to testify before the House of Commons Standing Committee on Finance. Therefore, the USDCAD pair will most likely be very volatile as the central bank(er)s usually spur some larger movements in currencies.
In the FX, the greenback is slowly recovering from the latest sell-off, but gains seem limited due to the anti-dollar mood. If the Fed sounds dovish today, the USD might come under renewed selling pressure.
Equities staged a nice rally yesterday, with the SP500 index to fresh all-time highs. Stocks tend to rise during the FOMC weeks, and this week might not be an exception. In Europe, the German DAX remains well above 15,000 EUR, maintaining the long-term uptrend.
However, it looks like the US 10-year yield is about to break out from its falling wedge pattern, which is a bullish continuation pattern. Should that happen and yields start to rally, equities could suffer a correction.