USD/CAD bulls have pulled back following significnt move higher ahead of Fed

• USD/CAD bulls take control into the mid point of the broadening formation on the 4-hour time frame. 
• The markets will be looking to the Fed for direction at this juncture. 

USD/CAD is flat for the session so far in Asia ahead of the Tokyo open. The price has been moving higher over the course of the past few session mitigating some of the imbalance in price left behind from the prior sell-of. However, the focus is now on the Federal Reserve interest rate decision today.

The two-day Federal Open Market Committee started on Tuesday with the central bank widely expected to hike rates 75 bp to 2.50%. WIRP suggests only around 15% odds of a 100 bp move. ''With the recent weakness in the data, there is simply no need to go bigger this week,'' analysts at Brown Brothers Harriman argued.

''Updated macro forecasts and Dot Plots won’t come until the September meeting.  Another 75 bp hike on September 21 is about 50% priced in.  A 25 bp hike is fully priced in for November 2 but after that, one last 25 bp hike is only partially priced in. The swaps market paints a similar picture, with 175 of tightening priced in over the next 6 months that would see the policy rate peak near 3.5%.  After that, an easing cycle is priced in for the subsequent 6 months.''

Fed Chair Jerome Powell may well also retain optionality by leaving the door open to additional 75bp rate increases and investors will be keeping a close eye on the Fed's forward guidance.

''Yes, the US economic data have been weakening but we do not think a recession is imminent,'' the analysts at BBH said. ''When all is said and done, we believe the US economy remains the most resilient. However, we expect a period of consolidation ahead for the dollar until the US economic outlook becomes clearer.'' Additionally, there is a high bar to compel directional USD moves with at least 75bps priced in already. ''The potential for more hikes is likely to keep an upward bias on front end rates and the curve flatter,'' analysts at TD Securities argued. 

USD/CAD technical analysis

In the prior analysis, USD/CAD Price Analysis: Bears are moving in with eyes on a test of 1.2800, the broadening formation was identified as follows:

Since the analysis, the price has moved in on the midpoint of the range:

At this juncture, the bulls could move in from a discount if the price continues to correct the latest bullish impulse and in a continuation towards the mitigation of the price imbalance above en route to the upper end of the broadening formaiton.