16.11.202217:15 Forex Analysis & Reviews: GBP/USD analysis on November 16. Inflation pays no attention to the Bank of England rate hike

The wave marking looks quite complicated for the pound/dollar instrument but still needs to be clarified. We have a supposedly completed downward trend segment consisting of five waves (a-b-c-d-e). We also have a five-wave upward trend section, which took the form (a-b-c-d-e). Thus, the increase in the instrument's quotes may continue for some time, but it will be a wave of growth that is unlikely to last. The news background could be interpreted in any direction lately, as both central banks raised their interest rates, and the Friday before last, we saw the dollar fall against the news background, which could well lead to its new growth (Nonfarm Payrolls report). All this leads me to believe that the market has decided to complete a full-fledged five-wave structure, after which it will decide on building a new downward trend section. A successful attempt to break through the 1.1704 mark, which equates to 161.8% by Fibonacci, indicates the incompleteness of the upward trend section, but in general, the wave structure looks fully equipped.

Inflation in the UK has exceeded 11%

The exchange rate of the pound/dollar instrument increased by only 20 basis points on November 16, and the amplitude decreased noticeably. However, this is quite strange because the news background was much weaker the day before, and the amplitude was almost 150 points. Today, the UK released an inflation report for October, and it is very difficult to call it positive for the country and its currency. Prices increased by 11.1% compared to October last year, which exceeded even the most pessimistic expectations. Core inflation remained at 6.5%, but unlike many, I pay more attention to the main indicator than the base one. If prices rise for certain categories of goods, not just food and fuel, this is also inflation.

The British pound practically did not react to this report in any way, which is also quite strange since this is the most important report this week, and it is of great importance in the context of the monetary policy of the Bank of England. As inflation continues to rise, the British regulator needs to raise the rate, which is already at 3% but has yet to lead to any significant decrease in the consumer price index. This perfectly illustrates whether the ECB needs to continue raising the rate. However, the rate is lower in the European Union, and it can afford to raise it another 2-3 times by 75 basis points. Taking into account the recession that has begun in the UK, each subsequent increase of 75 points will be disastrous for the economy, creating the holes Rishi Sunak intends to patch. Therefore, I have doubts that the Bank of England will be ready to raise the rate again by 75 points even in December. The pound may repeat the "fall of the dollar" in the last few weeks due to the high probability of a drop in the pace of policy tightening.

General conclusions

The wave pattern of the pound/dollar instrument assumes the construction of a new downward trend segment, but it may start a little later (if it starts at all). I can no longer advise buying the instrument since the wave marking already allows the beginning of the construction of a downward trend section. The demand for the pound is still growing, but the wave e will not take on an extended form.

The picture is very similar to the euro/dollar instrument at the higher wave scale, which is good since both instruments should move similarly. At this time, the upward correction section of the trend is nearing completion. If this is the case, we will soon be building a new downward trend.