US dollar takes on critical 112.00 and US 10-year back to 4% after FOMC

• US dollar turns on a dime following hawkish Fed Powell. 
• DXY bulls ere 114.00 with prospects of a higher terminal rate at the Fed. 

It was one of the most eventful Federal Reserve meetings since the start of the year with respect to market volatility. The US 10-year Treasury note yield bounced back above 4% as investors continue to see interest rates extending substantially higher until inflation is under control. The Fed's chairman, Jerome Powell flipped the switch on the day when he signalled a higher terminal rate, combatant in the face of risk-on markets that took off following a dovish FOMC statement. 

Fed Chair Powell said during the press conference that incoming data since the last meeting suggested the terminal level of interest rates will be higher than expected. He said this after the FOMC decided to raise interest rates by 75bps, signalling more hikes, though possibly in smaller increases. 

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial deviations," the statement reads. 

However, rates shot higher when Powell's hawkish comments at the presser started to sink in, sending the US dollar in a U-turn:

• Powell speech: Very premature to be thinking about pausing

• Powell speech: Will likely need restrictive stance of policy for some time

• Powell speech: Longer-term inflation expectations are still well anchored

• Powell speech: Will take time for full effects of monetary restraint to be realized

• Powell speech: Time for slower hikes may come as soon as December or February

US dollar & 10-year yield technical analysis

The 10-year yield has carved out the M-formation with the yield moving gin on the neckline and hugging the counter trendline. However, the retracement has potentially run its course in a 50% mean reversion. The bulls will need to get above 4.20% for a convincing upside continuation bias. 

As for the greenback, DXY has rallied sharply into test 112.00.

Looking forward, if the bulls can get above 112.00 and then 112.50, there will be prospects of a move to 114.00.