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As we have already determined, the Federal Reserve may significantly limit the potential rate cuts in 2024. I will remind you that it all started with expectations of 6 or 7 rounds of interest rate cuts. This was the overwhelming opinion in the market at the beginning of the year. Then it gradually decreased to 5 rounds. Now the market doubts even three rate cuts.
The same applies to the timing of the start of the monetary policy easing process. The market initially expected it to start in March, but now there are serious doubts that it will even begin by June. Many economists talk about September and about one, at most two rounds of cuts in 2024. I agree with the latter, as I myself believe that the Fed may refrain from easing altogether. If inflation continues to stay above 3%, then why would the US central bank lower rates?
According to the CME FedWatch tool, expectations have also sharply decreased. Most economists believe that on December 18, the Fed rate will be 4.75%, implying only three rounds of cuts. I believe that all the information I mentioned points to the same thing: expectations are becoming increasingly hawkish, so demand for the US dollar should only increase. After all, there are almost no doubts about rate cuts in the Eurozone in June. The situation with the Bank of England is more complicated, but the euro should definitely fall against the dollar.
The Financial Times conducted a survey among economists, asking them one question: how many times will the FOMC cut rates in 2024? More than 65% responded that it will be once or twice, no more. According to most, the most likely date for the first rate cut is July or September, but not June. Harvard economist Jason Furman said that the Fed really wants to cut rates to relieve pressure from markets and the government, but the data is going to make it harder for them to do it.
Therefore, as I speculated earlier, the question of lowering rates at least once in 2024 is far from settled. If inflation continues to stay above 3%, then we won't see the first rate cut anytime soon. It's quite possible that even the BoE will start cutting rates before the Fed. Although it's hard to believe that now. But still, inflation is slowing down in the UK, while it's not in the US.
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 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, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% according to 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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