The Bank of England is the only key central bank that is forced to sit idle and wait. The European Central Bank is close to taking its first rate cut, as inflation in the EU has already decreased to 2.5%. The Federal Reserve, with U.S. inflation at 3.2%, can afford to wait for its own economy and only then start lowering the rate. The BoE is in a much worse position than the ECB and the Fed combined.
The British economy has contracted for two consecutive quarters. Despite the positive GDP figure in January, it is unlikely for us to see growth at the end of the first quarter. At the same time, inflation in the UK is not at 2.5% or 3.2%, but at 4%. Therefore, the BoE is tied and forced to wait for inflation to decrease, while watching its economy shrink.
Jonathan Haskell, a member of the Monetary Policy Committee, said he is encouraged by signs that Britain's inflation pressures might be on the wane but he would need more evidence of a cool-down before changing his stance. "The signs that we've seen thus far are encouraging. But I don't think we've seen quite enough signs yet," Haskel said in an interview. He said that more evidence that inflation was under control was necessary before he would vote in favor of cutting interest rates.
He also added that we need to wait a little longer. According to him, "it's been a turbulent six years, I've got to say the economy, in some ways, has been amazingly resilient,". Take note that the pound continues to enjoy demand in the currency market, although it is hardly related to the BoE's persistence. The Fed has also not lowered its rate yet and does not plan to do so in the near future. However, the pound continues to rise while the dollar continues to fall. The bullish sentiment is too strong, with wave markings and news fading into the background. There are some signs of completing corrective wave 2 or b, but they are not enough for us to confidently start selling the GBP/USD instrument.
This week's UK data did not have much impact on market sentiment, nor did the US inflation report. As I said before, the news background plays a small role for market participants now.
Wave analysis for EUR/USD:
Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Wave 2 or b is complete, so in the near future, I expect an impulsive downward wave 3 or c to form with a significant decline in the instrument. An internal corrective wave is currently being formed, which could have already ended. I am considering short positions with targets around the level of 1.0462, which corresponds to 127.2% according to Fibonacci.
Wave analysis for GBP/USD:
The wave pattern of the GBP/USD instrument suggests a decline. I am considering selling the instrument with targets below the 1.2039 level, because I believe that wave 3 or c will start sooner or later. However, unless wave 2 or b ends, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% Fibonacci retracement. A successful attempt to break through the level of 1.2877, which is equivalent to 76.4% Fibonacci retracement, will indicate that the market is ready to increase the demand for the instrument. However, at this time it is futile, so the construction of wave 3 or c may have already started.
Key principles of my analysis:
Wave structures should be simple and understandable. Complex structures are difficult to work with, and they often bring changes.
If you are not confident about the market's movement, it would be better not to enter it.
We cannot guarantee the direction of movement. Don't forget about Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.
