It is a sin not to discuss the events and data that should occur at the start of a new trading week. The upcoming meetings of the ECB, the Fed, and the Bank of England, which will occur in early February, are already on the market's radar, in my opinion. The market may operate under the assumption that these changes will occur over the next two weeks because market expectations for future rates have changed significantly in the last week. Why do I say that? Of course, the fact that inflation has declined in the United States negates the need to increase the rate by 50 basis points. Let me remind you that the US dollar started to fall when American inflation had just begun to slow down six months ago, and it continued to fall when the Fed started to imply that policy tightening was slowing down. As a result, the past is currently repeating itself. The market is anticipating a slowdown in the rate hike, which might lead to a decrease in demand for US dollars. Whether it makes sense to anticipate anything similar about the euro and the pound should also be investigated.
Therefore, this week will see the revelation of the European Union's final inflation rate for December. It is most likely going to stay at 9.2%. Let me remind you that the decrease in December was significant—it was close to 1%. Few analysts today still predict that EU inflation will slow down this much every month, but it's still possible. But does this imply that the ECB will start to moderate the rate of increase as well? No, in my opinion, as long as inflation remains high and numerous ECB board members stated at the start of the year that they were willing to raise the rate by 50 basis points twice more.
This week will also see the release of the December inflation rate in the UK. Official predictions state that the slowdown will be barely noticeable. Only 0.1% to 0.2% less is expected year over year. Therefore, if inflation keeps falling at this rate, the Bank of England won't have any reason to slow down the pace of tightening. At the same time, Goldman Sachs predicts a pause from the British regulator because any ensuing policy tightening will be extremely unpleasant for the British economy. Even his appearance has been forgotten as Andrew Bailey is mute. There is hardly any information available on this subject. A level of uncertainty like this, in my opinion, could work against the British because the market currently sees a further increase as the most likely scenario. However, the pound could plunge if the Bank of England made a "dovish" statement because the UK economy is in no way comparable to the US one right now. The Bank of England, which the market believes should continue to combat excessive inflation, is the only factor driving the pound's continued growth. But will it carry it out as the market anticipates? The pound is currently moving on extremely thin ice. Many economists do not anticipate a significant strengthening of the pound in 2023. The UK recession may be severe and protracted.
I conclude that the upward trend section's building is about finished based on the analysis. As a result, given that the MACD is indicating a "down" trend, it is now viable to contemplate sales with targets close to the predicted 0.9994 level, or 323.6% per Fibonacci. The potential for complicating and extending the upward portion of the trend remains quite strong, as does the likelihood of this happening. Near the Fibo levels, we are watching for signals.
The building of a downward trend section is still assumed by the wave pattern of the pound/dollar instrument. According to the "down" reversals of the MACD indicator, it is possible to take into account sales with objectives around the level of 1.1508, which corresponds to 50.0% by Fibonacci. The upward portion of the trend is probably over, however, it might yet take a longer form than it does right now. However, you should exercise caution when making sales at this time because the value of the pound tends to rise.
