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Disappointment. This is one word to characterize the state of the market on Wednesday evening. I can't say that the entire market expected more hawkish statements and actions from Federal Reserve Chair Jerome Powell and the US central bank, but the dollar's subsequent decline showed that the majority did expect such a scenario. The reasons for this were very simple – the latest US inflation report. I can't say it was unexpected (inflation increased exactly within the forecast range), but it's not about the expectation/reality ratio, but the fact that US inflation cannot fall below 3% on an annual basis. Based on this, the market expected that the FOMC might tighten their rhetoric related to monetary policy. However, this did not happen.
The "dot-plot" remained unchanged for the year 2024 and still implies three rate cuts. In 2025, the easing may be less than previously estimated by the central bank and the market, but the situation may also change before 2025. Therefore, I don't think it's necessary to take this information too close to heart right now. Powell said that there are still doubts about reaching the target inflation level, but he didn't mention anything about the possible timing for the first rate cut. The market still assumes it will happen in June.
As of Wednesday, interest rate traders assigned a 56% probability to the FOMC enacting its first quarter-point rate cut in June, according to CME Group's FedWatch Tool. On Thursday, it stood at 63.5%. However, I wouldn't rush to conclusions because inflation in the US is still rising, not falling. I wouldn't be surprised if the timing for the first rate cut changes from June to July instead of May because the Fed made it clear that inflation is the key determinant of monetary policy. If it continues to show the same pace, the central bank may maintain its restrictive policy for longer. This is the main takeaway from the FOMC meeting.
Based on all of the above, I don't see much change for the US dollar. I expected it to rise before the meeting, and I still do now. Both wave patterns haven't changed and are still pointing downwards.
Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Wave 2 or b is complete, so in the near future, I expect an impulsive downward wave 3 or c to form with a significant decline in the instrument. An internal corrective wave is currently being formed, which could have already ended. I am considering short positions with targets near the 1.0462 mark, which corresponds to 127.2% according to Fibonacci.
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 wave 2 or b ends, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% Fibonacci. The construction of wave 3 or c may have already started, but the quotes haven't moved far away from the peaks, so we cannot confirm this. A breakthrough of 1.2715 will encourage those who are bearish.
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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