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In recent months, I have repeatedly mentioned the same thing: the Federal Reserve is not ready to lower rates in any particular month. In other words, there is no plan or schedule for interest rate cuts, nor can there be one. I personally don't understand where the forecasts for rate cuts in March and June came from. However, the market is simply astonishing in its naivety this year. When I say "the market," I mean its participants, who are behaving as if the Fed has already announced monetary easing, and analysts and economists who made their forecasts without any clear and solid grounds.
I want to remind you that inflation in the United States has not dropped below 3% once. This indicates that the current progress is not even enough to start a discussion on policy easing. FOMC member Adriana Kugler (and many other policymakers) stated that "at some point in the future, the labor market, inflation, and the economy will allow easing to begin." None of the Fed policymakers ever mentioned March or June.
And now the market is experiencing a state of shock. Inflation is rising again, and prices have already factored in 5-6 rounds of rate cuts. Now the market has to abandon its forecasts and raise demand for the dollar, which fully corresponds to the current wave markup. The only concern is the British currency, which has been trading sideways for several months. But even the pound dropped to the 25 figure on Wednesday and has real chances of a successful breakout after a series of failures.
It seems that the market desperately tried to prevent the pound from falling, but ultimately succumbed under the weight of the news background. If this assumption is correct, then a wave 3 or C for the British pound will begin to form. And the euro will continue to gradually fall in accordance with its wave markup.
By the way, the European Central Bank meeting is scheduled for Thursday, and we don't expect this event to provide support for the euro. Unlike the U.S., inflation in the EU has already dropped to 2.4%, giving the ECB the opportunity to start monetary easing as early as June. For the market, this is another reason to reduce demand for the euro and increase it for the dollar.
Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Waves 2 or b and 2 in 3 or c are complete, so in the near future, I expect an impulsive downward wave 3 in 3 or c to form with a significant decline in the instrument. I am considering short positions with targets near the 1.0462 mark, which corresponds to 127.2% Fibonacci, as the news background remains in favor of the dollar. New sell signals are needed.
The wave pattern of the GBP/USD instrument suggests a decline. I am considering selling the instrument with targets below the 1.2039 level, because I believe that wave 3 or c will start sooner or later. However, unless we can guarantee that wave 2 or b has ended, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% Fibonacci. The quotes haven't moved far away from the peaks, so we cannot confirm the start of the wave 3 or c.
Wave structures should be simple and understandable. Complex structures are difficult to work with, and they often bring changes.
If you are not confident about the market's movement, it would be better not to enter it.
We cannot guarantee the direction of movement. Don't forget about Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.
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