Smoothly and calmly, we approach the week that will host the meetings of the central banks of the United Kingdom and the United States. The European Central Bank meeting, if it didn't disappoint, did not bring any new information to delight the markets. They reacted to it in a quick and weak manner. In general, we only learned that the ECB may lower rates this summer, but the word "may" can be interpreted differently. It may happen, or it may not. In terms of specifics, the markets did not receive much.
So what can we expect from the Federal Reserve? Based on the January meeting, we can only anticipate some hints about the timing of the start of monetary easing. Rates will likely remain unchanged at the end of the first meeting of the year, and most likely, they won't change at the second meeting in March either. A few weeks ago, the market consensus was leaning towards a rate cut in March. However, many analysts have already adjusted their forecast to May, and some even to June.
Among those, Veronica Clark and Peter Boockvar stood out, who spoke on CNBC. Clark said that the Fed would initiate the policy easing process in June, hinting at this when discussing the strong GDP data in the fourth quarter. Clark also mentioned that the U.S. labor market is slowing down, consumer defaults are increasing, and employment levels are declining. However, she added that all these data are not as bad as they may seem and undoubtedly require more scrutiny. In Clark's opinion, the Fed should not rush to lower interest rates.
Boockvar highlighted the issue of societal stratification based on wealth and added that the affluent continue to maintain high spending (which fuels inflation) while consumers with low incomes are forced to save. According to him, some Americans are facing the challenge of high housing costs and are seeking more affordable options. However, Boockvar also warned against sharp and rapid rate cuts by the Fed. According to him, a "balanced approach" is necessary.
According to market sentiment, the probability of a rate cut in March is 46%. It is 87% in May. However, we cannot consider the May forecast as relevant yet, as it partially incorporates the rate cut expected in March. I consider the May forecast as a weighted average, but it is quite possible that next week this forecast will be adjusted to June.
Based on the analysis, I conclude that a bearish wave pattern is being formed. Wave 2 or b appears to be complete, so I expect an impulsive descending wave 3 or c to form with a significant decline in the instrument. The failed attempt to break through the 1.1125 level, which corresponds to the 23.6% Fibonacci retracement, suggests that the market is prepared to sell a month ago. I will only consider short positions with targets near the level of 1.0462, which corresponds to 127.2% Fibonacci.
The wave pattern for the GBP/USD pair suggests a decline. At this time, I am considering selling the instrument with targets below the 1.2039 mark because wave 2 or b will eventually end, and could do so at any moment. However, since we are currently observing a flat pattern, I wouldn't rush to short positions at this time. Since the movement has been horizontal for a month now, I would wait for a successful attempt to break below the 1.2627 level in order to grow more confident about the instrument's decline.
