11.06.202600:26 Forex Analysis & Reviews: How Have Market Expectations Changed After the US Inflation Report?

On Tuesday, I wrote that the probability of at least one Federal Reserve interest rate hike by the end of the year currently stands at around 70%, according to the CME FedWatch tool. On Wednesday, it became known that inflation in the US surged to 4.2%. While this figure aligns with market expectations, it is hardly normal. In just three months, the consumer price index has accelerated from 2.4% to 4.2% and continues to move away from the Fed's target.

We have already debated many times whether the FOMC committee under Kevin Warsh will move towards tightening policy. I believe the FOMC will wait and drag its feet, trying to avoid raising interest rates. However, it cannot be denied that recent US economic data (not just inflation) have somewhat increased the likelihood of policy tightening in 2026.

Firstly, this refers to the US labor market, which began to recover in 2026 after three rounds of easing in 2025. The last three Nonfarm Payroll reports have indeed shown promising figures, bringing them closer to four-year highs when the labor market encountered no problems. Consequently, the Fed may no longer need to focus all its attention on the labor market.

Secondly, as mentioned, inflation has risen to 4.2% and is unlikely to stop at this level. This means that either a tightening of Fed policy or a resolution of the conflict in the Middle East and the reopening of the Strait of Hormuz is needed to slow it. The FOMC committee is probably desperately awaiting the second event to avoid the first.

Thirdly, economic growth in the US accelerated slightly in the first quarter compared to the fourth quarter of last year, but still remains significantly below even a "neutral" level. I would remind you that earlier economists estimated that, under Donald Trump, his policies would have caused the US GDP to miss at least 0.9% in 2025. Therefore, current growth rates are not high, and raising interest rates will lead to a "cooling" of the economy and the labor market. This is certainly not what Trump aims to achieve.

Based on the aforementioned, I believe we should pay attention to statements from Fed officials. So far, none of them have signaled a readiness to vote for policy tightening before the end of 2026.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward segment of the trend (bottom picture), while in the shorter term, it is within a downward segment of the trend that may already be complete. In my opinion, this is a good time to consider forming long positions. The unsuccessful attempt to break the mark of 1.1513, which corresponds to 76.4% on the Fibonacci scale, combined with the completed appearance of the downward segment of the trend, suggests that the instrument may transition to building an upward wave set with targets around the 17 figure and higher.

Wave Picture for GBP/USD:

The wave picture for GBP/USD has become clearer. Currently, the instrument has built three waves down, while EUR/USD has formed five. Consequently, the British pound may limit itself to forming a corrective structure, and both currency pairs may begin to build upward trend segments. At the moment, this is merely an assumption, but a plausible one. If it is accurate, the instrument will start to rise, with targets around the 35 level and higher. Market participants currently have a good opportunity to make purchases.

Key Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play back and often involve changes.
2. If there is no confidence in the market, it is better not to enter it.
3. There can never be 100% confidence in the direction of movement. Don't forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.