31.01.202500:49 Forex Analysis & Reviews: ECB Meeting Results and Their Impact on the Euro

The European Central Bank meeting concluded immediately after the Federal Reserve meeting. In my previous review, I mentioned that the rhetoric from Powell should have strengthened the dollar; however, the market largely ignored his statements. It was announced that the ECB reduced all three interest rates by 25 basis points. The current deposit rate is now 2.75%, the refinancing rate is 2.9%, and the marginal loan rate is 3.15%. By summer, the deposit rate could drop to 2%, and potentially lower in the second half of the year. While the market may have anticipated these rate cuts, demand for the euro has been increasing over the past three weeks, making this conclusion uncertain.

The ECB's press release stated that the disinflation process is progressing as expected, and inflation may return to a stable 2% this year. The central bank acknowledged that prices and wages in the European Union continue to rise more than anticipated, but they need time to stabilize. Although monetary policy remains restrictive, borrowing costs for households are decreasing. ECB governors are closely monitoring economic data and will decide on rates at each individual meeting, with no specific timetable for easing policy presently in place.

Based on this information, it appears that the ECB sees no barriers to continuing rate cuts. I believe that the ECB is willing to pursue this easing strategy not solely because of low inflation, but due to a weak economy. Recent reports on economic growth in Germany and the European Union were once again disappointing. In simple terms, the EU economy is barely growing. The reduction of the ECB rate from 4.5% to 2.75% has not had a positive effect. The central bank is now more focused on stimulating the eurozone economy than controlling inflation, although it continues to reference the consumer price index in its statements.

In my opinion, the current position of the ECB will only lead to a further weakening of the euro. As I've mentioned before, we are currently witnessing the formation of a corrective wave pattern. Once this pattern is completed, wave analysis suggests that the euro will likely begin a prolonged decline. Additionally, I believe that the prevailing news environment also supports this downward trend for the euro. We just need to wait for the correction structure to finish.

Wave Analysis for EUR/USD:

Based on my EUR/USD analysis, the pair is still forming a bearish trend segment. The first wave of this segment appears well-structured and complete. Therefore, a three-wave or more complex corrective structure should be expected, presenting new selling opportunities at the highest points of this structure. Wave A within Wave 2 has already concluded, meaning Wave B within Wave 2 has begun and may finish as early as today.

Wave Analysis for GBP/USD:

The wave structure of GBP/USD also indicates that the bearish trend remains intact, with Wave 1 already completed. Now, we should wait for a clear corrective wave (or a set of waves), after which new selling opportunities can be identified. The minimum target for the corrective structure is near the 1.26 level, while a more optimistic target is around 1.28. This could be an ideal time to complete Wave 1 within Wave 2.

Core Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are challenging to trade and often subject to change.
2. If market conditions are unclear, it is better to stay out.
3. There is never 100% certainty in market direction. Always use Stop Loss orders.
4. Wave analysis can be combined with other analytical methods and trading strategies.