19.11.202323:57 Forex Analysis & Reviews: The interest rate shuffle in the European Union and the United States

Lately, a lot has been said about the Federal Reserve and the European Central Bank rates. Both central banks seem to be unable to decide what to do next. This uncertainty is reflected in the constantly changing comments from members of the governing councils of each central bank. In recent months, we have heard a plethora of statements suggesting a possible new rate hike in both the U.S. and the EU, as well as numerous statements that additional tightening is not necessary. And that could be the end of the article because I can't know better than the top bankers what will happen with interest rates next. I can only speculate, and even for that, there needs to be some basis.

What can we say about inflation now? It is decreasing both in the EU and the U.S. This decrease suggests that further tightening is not necessary. However, inflation could start accelerating again or stop slowing down. For instance, both central banks said that we should not expect inflation to return to the target level before 2025. If inflation in the EU is currently 2.9%, and in the U.S. at 3.2%, it will take both banks more than a year to cover the way to 1%. This fact suggests that inflation will not fall as quickly as it did in 2023.

In conclusion, when members of the governing councils of one or another bank say that the rate may be raised if the situation requires it, they are not deceiving or trying to confuse the market. This is indeed the case. In other words, no one knows what will happen with inflation in the future, and therefore, no one knows what will happen with interest rates. The market, as always, draws its own conclusions based on its own assumptions, which may be far from the truth

Now I expect the formation of waves 3 or C, which should have already begun. However, this moment is dragging on, and theoretically, corrective waves 2 or B may turn out to be even 90-100% of waves 1 or A.

Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 mark, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling with targets below the low of wave 1 or a. But be cautious with short positions, as wave 2 or b may take a more extended form, or it would just be better to wait for signals of the end of the wave.

The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can count on is a correction. At this time, I can already recommend selling the instrument with targets below the 1.2068 mark because wave 2 or b will end. It would have already ended if not for a series of disappointing reports from America. Initially, just a good amount of short positions should be enough because there is always a risk of complicating the existing wave.