In my previous reviews, I pointed out that the wave structures of the two instruments I analyze daily were about to see the completion of the ascending sections of the trend. These sections will comprise 5 waves, and they won't be impulse ones. This is the most likely scenario because demand for the dollar may soar in the near term. Let's now analyze possible reasons for a stronger greenback.
This article is mostly about Goldman Sachs Group. Its analysts have downgraded their forecasts for EUR to $0.94 from $0.97 for the coming three months. In the course of its latest fall, the instrument approached $0.95. Given the latest forecast, we may expect the descending section of the trend to resume its formation or a new section to build up. According to Goldman Sachs, having a floating target, the US Federal Reserve may raise interest rates to 5% by March 2023, with one increase of 0.50% and two increases of 0.25%. Meanwhile, other central banks, including the Bank of England and the ECB, won't have any floating targets. Therefore, monetary policy divergence may deepen towards the US dollar.
In addition, Goldman Sachs says there is a 35% probability of the United States entering a recession in the coming 12 months, citing high inflation, the aggressive Federal Reserve, and geopolitical uncertainty. The company underlined that its forecast is more optimistic compared to the outlooks from other firms and banks because it foresees a realistic scenario of an economic path from high inflation to low inflation and without a recession. Economic growth in the United States is expected to fall below the trend line but remain above zero. The balance in the labor market is likely to be restored, and unemployment growth to be limited.
If it is an accurate forecast, the US economy is unlikely to get hurt badly. If a recession is weak and inflation gets back to 2% rather fast, there will be still no reason for an increase in demand for the dollar because analysts do not expect an easy path for the European or British economy. BoE Governor Bailey announced the British economy entered a recession in the third quarter, which may last for 2 years. Meanwhile, the ECB will hardly lift interest rates to 5% because the European Union is not a single country but a union of nations in different financial situations. Some countries will survive high rates painlessly, some may need economic support for quite a long time. By economic aid, we mean new allocations and stimulus programs, and this is something the ECB would like to avoid. Thus, the dollar again looks more promising than the euro and the pound.
Based on the analysis, we may anticipate that the formation of the ascending trend section will become more complex and comprise up to five waves. It may be that the fifth wave of this section is now building up. Therefore, consider buying with targets located above the peak of wave c, based on the reversals of the MACD to the upside. The entire section of the trend after September 28th now has the a-b-c-d-e structure. However, once it is complete, the formation of a new downtrend section may begin.
