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This week has been quite dull, although both FOMC and ECB members made several important statements. The euro saw demand on Wednesday, but this was clearly a correction. Last week, the euro lost enough ground so at least it could execute some kind of upward movement. However, the overall wave structure has not changed just because quotes have edged up. It cannot change unless something surprising happens. But then Bank of France Governor Francois Villeroy de Galhau made quite an important statement on Thursday.
The European Central Bank policymaker said there was "a very large consensus" for a cut in June unless there is a surprising turn concerning data. Obviously, this refers to an unexpected acceleration in price growth in the European Union. It's difficult for me to say how likely it is for prices to surge, but it is still possible. However, there is no point in denying that the ECB is already 80% ready to start easing monetary policy.
"The risk would be to be behind the curve and to pay a too high cost in terms of economic activity," he added. "It is time to take an insurance against risk of being behind the curve. After the first rate cut, we will monitor inflation data. When inflation is receding, it is time to go back to structural transformation," Villeroy said.
He also added that the European Union managed to avoid a recession, which is undoubtedly good news. Villeroy believes that inflation continues to slow down, which is certainly a good thing and gives the ECB room for maneuver. In my opinion, if inflation does not sharply rise in the next two months, the ECB will start cutting rates. Therefore, inflation reports are still important for the currency market. I see no point in predicting future inflation values, as even central banks and major investment banks make mistakes in their forecasts time and again. Therefore, I believe that we should act according to the situation. And at the moment, the situation suggests that the euro will fall further, as the ECB is 80% ready to start easing, while the Federal Reserve will continue to wait for the Consumer Price Index to drop below at least 3%.
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 has 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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