Both trading instruments are waiting for the meetings of the ECB, the Fed, and the BoE. The British pound ignored data on the UK GDP and unemployment rate. Against the backdrop, the market remains stagnant. Yesterday, we saw an insignificant rise in the market activity caused by the US inflation report. However, the most important events are still to come. I have already mentioned that the Fed meeting results are almost predetermined. There is no doubt that the Fed will raise the benchmark rate by 50 basis points. In addition, Jerome Powell is likely to talk about the necessity to go on tightening the monetary policy. During the last few weeks, the market did not boost demand amid the same stance of the Fed. That is why the expected announcements are unlikely to surprise traders.
I suppose that the market has already priced in the FOMC meeting results. It is highly possible that traders are waiting for a good moment to start buying the US dollar. Theoretically, wave e may become more complicated for a long period of time. In this case, the wave analysis will lose its sense as it cannot predict when a decline will start. That is why I try to find a logical explanation for the movement of the euro and the pound sterling. At the moment, I see the necessity of a correction.
There are a lot of concerns about the meetings of the ECB and the Bank of England. Analysts still do not know whether these banks will lower the pace of raising their rates and how they will explain this decision. Let me remind you that inflation in the UK and the EU has not really even started to slow down. In this case, a slower pace of rate hikes will look quite strange. Of course, both central banks can continue tightening monetary policy until inflation drops, for example, to 4-5% by raising interest rates by 50 basis points. However, for the market, the refusal to increase by 75 basis points may come as a surprise despite the forecasts.
Meanwhile, the Fitch rating agency published a new forecast for global economic growth for 2023. According to the new data, the global GDP will grow by 1.4%, which is 0.3% less than in the previous forecast. Fitch noted that the decline in GDP was caused by global central banks. Many of them continue to tighten policy, having a cooling effect on the economy. The forecast also says that the fight against inflation has turned out to be more difficult and time-consuming. In addition, the central banks will have to hold high rates for a longer period, which will negatively affect economic growth. Notably, on Monday, Janet Yellen announced a high risk of a recession in the US economy in 2023. Therefore, 2023 may become a "year of negative growth" for many countries. According to the same Fitch forecast, the US economy will grow by 0.2% over the next year.
Judging by the analysis, the formation of the upward section of the trend has complicated to five waves and could be completed soon. Thus, it will be better to sell with targets located near 0.9994, which corresponds to the 323.6% Fibonacci level. There is a possibility that the upward section of the trend will become more complicated and even more extended. The likelihood of this scenario continues to grow.
The wave analysis of the pound/dollar pair showed the formation of a new downward trend section. I do not recommend traders buy the instrument since the formation of the downward section of the trend may begin right now. Now, traders may go short with targets around 1.1707, which corresponds to the 161.8% Fibonacci level. However, wave e could become even more extended.
