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As we have already mentioned, it no longer makes sense to expect a rate cut from the Federal Reserve. The latest inflation report exceeded the target mark almost twice. It will take at least 5-6 months for inflation to slow down to at least 2.5%, so that the Fed could finally start discussing monetary policy easing. And it should be clear that 5-6 months will only work if inflation starts to slow down in April. But what if it doesn't? The European Central Bank has reached an inflation rate of 2.4% y/y and they're not even in a hurry to lower interest rates. In June, when the first policy easing is planned, inflation in the EU could already reach 2% or slightly more. Therefore, we can understand the logic of the central bank: the rate should be lowered when inflation is very close to the target mark. That is, around 2%. The thing is, America is not even close to such results.
Following the latest US inflation report and Fed Chair Jerome Powell's speech on Tuesday, major companies and banks immediately revised their forecasts for FOMC policy easing in 2024. Now, Bank of America expects the rate to be cut 1-2 times at best this year, Barclays reduces its Fed rate cut view to one in 2024, and Societe Generale no longer sees a cut in Fed Funds until 2025. Quite a stark difference from market expectations at the beginning of the year, when 5-6 rate cuts were forecasted, isn't it?
Based on the latest information, my conclusions remain the same as before. I only become more confident with each passing day. Demand for the US dollar should increase, and now it should increase for longer than before, as the Fed will keep the rate at its peak longer than the market previously assumed. There should be enough time for both instruments to complete their waves 3 or C. It is quite possible that the downtrend segments will even take on a five-wave pattern, but it is still too early to say. We need to see convincing waves 3 or C, and I can see that the pound is still reluctant to fall. It is easier to expect a continued downward movement from the euro.
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 1.0463 mark, as the news background works in the dollar's favor. The sell signal we need near 1.0880 was formed (an attempt at a breakthrough failed).
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 have started to form. A successful attempt to break 1.2472, which corresponds to 50.0% Fibonacci, indicates that the market is finally ready to build a downward wave.
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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