This week, Federal Reserve Chairman Jerome Powell will speak before different committees in Congress. We can consider these two appearances as one since their text will be the same. The only difference might be the answers to senators' questions, but for obvious reasons, we won't know what they are in advance. Nor are Powell's answers. Therefore, we will rely on the information available at this time. The general market consensus is another quarter point rate hike in July. This is the opinion that Powell himself implanted in people's minds last week after announcing the central bank's pause in June. Now, the market believes that the rate hike in May was not the last, and that there may even be two more rate hikes in 2023. As we can see, this information is not providing any support to the dollar at the moment, but it's not over yet...
In my understanding, the Fed has already made significant progress in reducing the Consumer Price Index, which slowed down to 4% in May. The Producer Price Index has also shown excellent dynamics. While the pace of economic growth in America is slowing down, inflation is also decreasing. If inflation continues to slow down in June and July (two monthly reports will be released before the next meeting), for example, to 3.2%, then why would the FOMC raise rates again unexpectedly? After all, 3.2% is already very close to 2%, and tightening monetary policy has long-term effects on the economy and its indicators. We can expect further inflation reduction even without new rate hikes.
Based on this, in my opinion, a new rate hike in July is not definite for now, despite Powell's promises. Powell may face significant pressure in Congress, where they are clearly unhappy with the high cost of borrowing, which hampers economic growth. It is possible that the U.S. government is willing to tolerate inflation around 3% for some time, as long as the economy does not fall into a recession and its pace does not drop to zero, as in the European Union or the United Kingdom. Therefore, Powell's speeches in Congress will be significant for both the market and the dollar, as the Fed chair may slightly adjust his opinion regarding the July rate decision. The USD certainly wouldn't want the May rate hike to be the last. However, in the UK and the EU, we may also see the final rate hikes in the coming months. I believe this information will not hinder the future appreciation of the dollar.
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.