Demand for the European currency and the British pound continues to grow. As I have mentioned in previous reviews, it is growing quite strangely because, at least in half of the cases, the market has no reason to increase demand for these currencies. Nevertheless, the euro and the pound added another 30-50 pips on Tuesday, although there were no significant events during the day.
In order to avoid any misunderstanding between me and the readers, I want to emphasize one thing. There are important news and events, and there are simply interesting ones. Important ones are those that trigger an immediate market reaction or can influence the movement of instruments in the long term. Interesting ones are events that the market usually does not ignore but does not necessarily respond to.
On Tuesday, such an interesting but not important event was the statement by Bundesbank President Joachim Nagel. His statement that "interest rate hikes" may continue could theoretically trigger an increase in demand for the European Union's currency. However, I want to remind you that members of the ECB Governing Council speak practically every day. Someone says that further tightening is not necessary, someone says it is possible. After all, Nagel did not say that the rate will definitely be raised or that there are grounds for it.
He said that in case of worsening inflation, it may be necessary to raise the rate again. However, regarding a rate cut, his response was categorical – now is not the time. Therefore, his rhetoric can be characterized as hawkish, but it is unlikely that his statements became the reason that pushed the euro higher on Tuesday. The European Central Bank has not raised the rate for several meetings in a row, and inflation has already decreased to 2.9%. If the ECB aimed to tackle inflation as quickly as possible, it would not have taken such a long pause. The probability of tightening is still very low, which cannot support the euro.
Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 mark, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling with targets below the low of wave 1 or a. But be cautious with short positions, as wave 2 or b may take a more extended form. The best decision would be to refrain from selling until signs of the completion of 2 or b appear.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can count on is a correction. At this time, I can already recommend selling the instrument with targets below the 1.2068 mark because wave 2 or b will eventually end. The longer it takes, the stronger the fall. The narrowing triangle is a precursor to the end of the movement. However, I still recommend waiting for signals indicating the end of the corrective wave.
