There is no doubt that the European Central Bank will raise interest rates by another 25 basis points at the July meeting. However, everyone is concerned about how long the central bank will continue to raise rates after July, as the current consensus suggests a maximum rate of 4.25%. It will reach this value in July. In reality, there are no significant obstacles for further rate hikes. This (4.25%) is not the highest rate one can imagine. For example, the current rate of the Federal Reserve is already 5.25% and could increase to 5.75% in 2023. However, there are serious concerns that the ECB may not be able to continue monetary tightening due to the unsatisfactory state of the economy. Take note that the GDP has fallen by 0.1% in the last two quarters. While this is a small amount, it represents a negative trend. If the rate continues to increase, the pace of economic decline will also increase. It is unlikely that the ECB wants to bring inflation back to 2% at any cost now, only to stimulate the economy for years to come. Moreover, nobody in the ECB believes that inflation will return to 2% in the next year. The ECB's forecasts suggest a return to the target level no earlier than 2025.
At the same time, one of the members of the ECB's Governing Council, Patrick Honohan, said that he does not know what could happen with the rate after July. This statement alone tells us that the ECB is not inclined towards further hikes. While some members may support continued tightening, clearly not everyone does. The decision on the rate is made by a majority vote. There is no certainty that the majority will vote for a new hike in September or October.
I also want to draw your attention to the fact that weak inflation forecasts for 2023-2024 indirectly indicate a modest tightening of policy compared to the current rate level. If the ECB allowed an increase to 5% or 5.5%, the forecasts would clearly be more optimistic. Personally, I believe that the rate will rise to 4.25%, and each subsequent increase will be unplanned and will not occur at every meeting. Furthermore, I think that the rate may not rise above 4.25% if the next GDP report turns out to be weak again. Based on all of the above, the euro is more likely to experience a decrease in demand rather than a new increase. And the current wave pattern suggests a decline in the instrument.
Based on the analysis conducted, I conclude that a new downtrend is currently being built. The instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic. I advise selling the instrument using these targets. I believe that there is a high probability of completing the formation of wave b, and the MACD indicator has formed a "downward" signal. You can sell with a stop loss placed above the current peak of the presumed wave b.
The wave pattern of the GBP/USD instrument has changed and now it suggests the formation of an upward wave that can end at any moment. It would be advisable to consider buying the instrument only if there is a successful attempt to break above the 1.2842 level. You can also sell since the first attempt to break through this level was unsuccessful, and a stop loss can be set above it. However, be cautious on Thursday since there's a chance that the market's reaction to the BoE meeting may provoke sharp movements.