On Wednesday, there were plenty of important events both in the United States and in the European Union. In the morning, European Central Bank President Christine Lagarde spoke in Frankfurt, which exerted pressure on the euro. I will remind you that I was waiting for the euro to fall, and the wave pattern was pointing downwards for several consecutive months. However, the market is not in a hurry to build the assumed wave 3 or C. It needs constant news for support to reduce demand for the euro. And it does manage to get some support.
The main factor behind the euro's decline against the dollar is the constant postponement of the start of the Federal Reserve's rate-cut program. At the same time, the ECB is stable and seems to have already determined the date of the first rate cut. At least, practically all members of the Governing Council (with rare exceptions) have said that they consider June to be the right month to start lowering rates. Many policymakers have also said that it will all depend on inflation. And Lagarde said that the disinflation process is at work. Therefore, the euro may continue to fall, as there is no need to postpone the first rate cut from June to a later date.
Lagarde also said that demand will continue to increase, leading to an increase in labor productivity. She noted that it is still too early to declare victory against high inflation, but progress in reducing it is higher than the central bank expected. The average wage growth has already decreased to 4.2%, which will have a favorable impact on the Consumer Price Index. According to Lagarde, wage growth rates are approaching a level comparable to the inflation target. The ECB president also highlighted some divergence between service prices and wage growth. It is worth noting that inflation in the services sector is higher than in the goods sector, which slightly distorts the overall perception. It remains somewhat unclear whether inflation is decreasing due to a slowdown in wage growth or whether this factor has a small impact due to significant inflation reduction in the goods sector.
In any case, Lagarde spoke about disinflation and readiness to move towards lower interest rates. This is dovish information and a bearish factor for the euro. Now, it is necessary for the FOMC to take the most hawkish position.
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% according to Fibonacci. The construction of wave 3 or c may have already started, but the quotes haven't moved far away from the peaks, so we cannot confirm this. A breakthrough of 1.2715 will encourage those who are bearish.
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.
