The beginning of the new week was quite uneventful. Monday passed with low volatility, and both instruments fell on Tuesday. The remarks by FOMC member Michelle Bowman on Monday, indicating a very likely Federal Reserve rate hike in September, could indirectly have influenced increased demand for the dollar. What led to such words and is the dollar rising again as a result?
To answer these questions, we need to look at the general situation. Both instruments have been building uptrend segments for about a year. After such a prolonged rise, building a corrective trend segment is entirely normal. Therefore, even without hawkish rhetoric from FOMC members, the dollar can get stronger because corrective segments are being formed at the moment. It's possible that if this speech hadn't occurred or if Bowman's rhetoric had been more dovish, we might already be witnessing the construction of an ascending corrective wave. However, with each passing day, the market increasingly believes that the US will hike rates once again.
As of July, inflation in the United States could rise to 3.3%, but the main concern isn't even about that. The core inflation remains at 4.8% and is likely to remain unchanged by the end of July. The Fed is interested not only in the headline inflation figure but also in the core inflation. With unemployment dropping again to 3.5% (and its lowest level in half a century being 3.4%), the Fed can easily afford to raise rates once more without posing any additional risk to the economy. I should also note the high GDP figures. In the second quarter, GDP grew by 2.4%. Growth is less than 2% in the last four quarters. As we can see, the Fed not only has the need to continue raising rates but also all the necessary opportunities to do so. I believe that the Fed will hike rates once again, which could increase market demand for the dollar in the coming month.
Based on the conducted analysis, I conclude that the upward wave pattern is complete. I still consider targets around 1.0500-1.0600 quite realistic, and with these targets in mind, I recommend selling the instrument. The a-b-c structure looks complete and convincing, and closing below the 1.1172 mark indirectly confirms the development of a downtrend segment. Therefore, I recommend selling the instrument with targets located around 1.0836 and below. I expect the development of the downtrend segment to persist.
The wave pattern of the GBP/USD instrument suggests a decline. An attempt to break through the 1.3084 mark (from top to bottom) was successful, so you could open short positions, as I mentioned in my recent reviews. The target was the 1.2618 mark, and the pair reached it. There is a risk of completing the current downward wave if it is the fourth wave. In this case, a new upward movement within wave 5 will start from the current levels. In my opinion, this is not the most likely scenario, and a successful attempt to break through 1.2616 (or an unsuccessful attempt at 1.2840) will indicate that the market is prepared to build the downward wave.
