Demand for the US currency continues to decline. According to the almost unanimous opinion of analysts, this is because inflation in the United States has finally begun to slow down. It has been doing this for the third or fourth month in a row, and some FOMC members have begun to talk about slowing the pace of interest rate increases. However, in my humble opinion, this factor has already been won back by the market with a vengeance. The Fed has not even started slowing down yet, let alone completing the rate hike itself, and the US dollar has already collapsed against those currencies in comparison with which it has been growing for a long time. Therefore, I believe that the current wave marking of both instruments, which involves the construction of new downward trend lines (albeit corrective ones), is correct. Or, at least, it has the right to exist for now. In many ways, the further dynamics of both instruments will depend on the last meetings of central banks this year. Let's try to figure out what decisions can be made and how they will affect currencies.
Let's start with the Fed. The market is almost certain that the rate will start to slow down. But I don't think it will start slowing down sharply and immediately collapse to plus 25 basis points. I think that the Fed raises the least number of questions, and the rate will rise by 50 points in December. For the dollar, this means that it can receive modest support from the market since it has been so negatively perceived and there are only expectations of a slowdown in the pace of tightening.
ECB. Everything is a little more interesting here since this is the central bank with the lowest interest rate. Inflation in the European Union remains high, so the ECB has no choice but to raise interest rates at each meeting by no less than 75 basis points. When the ECB achieves at least a minimal slowdown in inflation, then there may be talk of a softer tightening of monetary policy, but I think that this is still far away. A new 75-point rate hike may provide strong support for the euro currency. But the rhetoric of Christine Lagarde (who, in particular, will speak twice this week) will also matter. If she reports that the ECB is ready to raise the rate by 75 points several more times, this will also be additional support for the euro currency.
The Bank of England. This section contains the most questions. On the one hand, inflation forces the British regulator to continue raising the rate at the maximum rate – by 75 points at each meeting. On the other hand, even at the last meeting, not all members of the monetary committee supported such a tough increase. At the next meeting, the pace may already have softened, and this may be a "verdict" for the pound. If the Bank of England withdraws amid price growth, the markets may be completely disappointed in the British pound, which has built a full-fledged upward trend section for the first time in a long time with great difficulty. A 75-point rate hike is likely to leave the pound afloat, but it can still build a corrective set of waves. As a result, I think that three waves will be built for each instrument.
Based on the analysis, I conclude that the construction of the upward trend section has become more complicated into five waves and continues due to the inflation report and the impartial statements of FOMC members. However, I can't advise buying now, since the wave marking does not yet imply a further increase. I advise selling in case of a successful attempt to break through the 1.0359 mark with targets located near the estimated 0.9994 mark, which corresponds to 323.6% Fibonacci.