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Recently, the market is focused on the ECB and Fed rates, and it has completely forgotten about the Bank of England. The BoE and its representatives are to blame for this. If FOMC and ECB Council members speak almost every day (except weekends), members of the Monetary Policy Committee of the British central bank speak a couple of times a week at best. Usually, they do not share any important information with the market, so many media outlets do not even review them. Therefore, market participants hold a small amount of information about the BoE's plans.
According to the general opinion, the British central bank will move to a more accommodative policy in August, which is two meetings later than the ECB and the Fed. Perhaps this is the main reason why demand for the British currency is growing again. Unfortunately, the market continues to see only what it wants to see. I have said more than once that a difference of one or two months is not crucial, but the pound has been rising against the dollar for over half a year. And this is despite the fact that the British economy is showing much more modest results than the American one. What other reasons could there be for the increased demand for the pound, apart from monetary ones?
Megan Greene, a member of the BoE's Monetary Policy Committee, said last week that inflation in the UK is declining at a good pace, but said she needed to see more signs of persistent price pressures in the UK cooling. She assured that the central bank does not intend to retreat on the issue of reducing inflation and will do everything necessary to achieve the 2% target. Greene noted that wage growth rates in the UK are very high, which negatively affects the inflation rates. Due to the strong growth in wages, there is every reason to expect that this could impede the progress of easing inflation. Greene believes that the BoE may face a situation where it will be forced to keep rates lower for longer than currently assumed.
Remember that the ECB seems to be one of the three central banks that has already decided on the timing of the first policy easing. The Fed may well move its timeline from June to July or even September if inflation continues to be stagnant, as it has for the past six months. The BoE is also forced to contend with high inflation, which also makes it hesitant to rush into easing. In this situation, the euro appears to be the outsider. The dollar and the pound should be in balance.
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 end. I am considering short positions with targets around the level of 1.0462, 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 (with 100% probability), the instrument can still rise to the level of 1.3140, which corresponds to 100.0% according to Fibonacci. A successful attempt to break through the level of 1.2877, which is equivalent to 76.4% according to Fibonacci, will indicate that the market is ready to increase the demand for the instrument. However, at this time it is futile, so the construction of wave 3 or c could already start.
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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