Several months ago, I mentioned that the constant speeches of ECB and Fed members had begun to confuse the market more than explain the situation and regulators' plans. I want to emphasize that a few months back, officials from both European and American regulatory bodies made almost daily statements suggesting that the possibility of further tightening was not ruled out. This created a situation where the market was left to speculate about the implications of such statements. I understand all the officials perfectly; none wanted to make loud promises because monetary policy is adjusted only based on inflation. Predicting what inflation will be in a few months is something even the statistical departments of central banks cannot do, as we see in every other inflation report. How, then, can one talk about the rate three months or later?
Now, the situation is very similar. The ECB and the Fed have abandoned further tightening, but it is unclear when the rate cuts will start and how strong they will be in 2024. On Friday, the president of the Federal Reserve Bank of New York, John Williams, stated that there is currently no talk of rate cuts. He said the rate will not be lowered at the upcoming meetings. "The FOMC should focus on its goals, not on market opinions and desires," Williams believes. The president of the Federal Reserve also pointed out that the market may be mistaken in its expectations, which may be exaggerated.
What do we get in the end? The market assumes several more tightenings, but central bank representatives do not say either "yes" or "no." The market expects to see some rate cuts in 2024, but central bank representatives say that their expectations are too high. The market assumes one thing, and what it assumes cannot be known even by the market itself. Regulators immediately say that market expectations are mistaken. There is no specificity. This may explain the not-very-logical movements in the market in recent months, especially in the last few weeks. The market does not understand what to expect from the Fed, the ECB, and the Bank of England.
Based on the above, I will adhere to wave analysis because it has some precision. Looking at the news background, it becomes unclear what to expect from the euro, pound, and dollar.
Based on the analysis conducted, I conclude that the construction of a bearish wave set continues. Targets around the level of 1.0463 have been ideally worked out, and the unsuccessful attempt to break this level indicated a transition to the construction of a corrective wave. Wave 2 or b has taken on a completed form, so I expect the construction of an impulsive downward wave 3 or c with a significant decline in the instrument soon. I still recommend selling with targets below the low of wave 1 or a. Stop-loss orders can be placed above the peak of the presumed wave 2 or b.
The wave pattern of the pound/dollar pair suggests a decline within the descending wave 3 or c. Currently, I can recommend selling the instrument with targets below the level of 1.2039 because wave 2 or b must ultimately be completed and can be completed at any time. And the longer it turns out, the stronger the fall of the British pound will be. The peak of the presumed wave e in 2 or b can be used for sales, and the order limiting possible losses for transactions can be placed above it.
