The Israeli conflict, which could escalate in the coming days and turn into a full-scale war, is currently capturing all of the market's attention. Israel has already declared war on Palestine, and Afghanistan and Lebanon are ready to enter the conflict. Unfortunately, a new military confrontation is unfolding in the Middle East. And what does the Middle East mean for the global economy? It means oil! As I have mentioned (and I'm not the only one), oil prices could soar in the near future, and today, all its grades have already increased in price by 5-6%. The more heated the situation becomes in the Middle East, the higher the chances of further increases in the cost of energy resources.
For the global economy, this implies higher prices for almost all goods, as transportation costs are embedded virtually everywhere. Heating costs in winter will also be factored into all goods and services. While Europe and the UK have started transitioning to "green" energy, this process could take years, if not a decade. Therefore, a new military conflict does not bode well for the global economy.
However, today I would like to talk about the possibility of an FOMC interest rate hike, which currently stands at 16.7%. In my opinion, this is a very low chance given the current circumstances. To remind you, inflation has been rising in the United States for two consecutive months, and two more inflation reports will be released before the next meeting, with the closest one set for release this Thursday (September's report). Based on forecasts and market discussions, it appears that no one expects a slowdown in the pace of price growth. If inflation increased to 3.7% in August, the consensus for September suggests that it will remain at 3.7% YoY.
Core inflation could decrease to 4.1%, but it is currently higher than headline inflation, and I suggest paying more attention to the indicator that is lower. Both inflation indicators in the United States could remain around 4%, which is twice the target level. Just two months ago, it seemed that the Consumer Price Index was about to return to its target, but now it appears that another one or two FOMC rate hikes may be needed. In light of these events, it seems strange to see that there is only a 16.7% probability (according to the CME FedWatch tool) of another rate hike on November 1st. I believe it is much higher. In any case, both instruments are currently in the process of forming a set of the downward wave, and unless something extraordinary happens, we will see more downward waves. Therefore, demand for the dollar will increase regardless of the Fed's decisions in November.
Based on the analysis conducted, I conclude that the formation of a downward wave set remains intact. Targets around the 1.0463 level have been perfectly executed, and failure to breach this mark indicates that the market is ready to form a corrective wave. In my recent reviews, I warned you that it might be worth considering closing short positions, as there is currently a high probability of forming an upward wave. A breakthrough of 1.0463 will signal another "false alarm," and you can once again sell the instrument with targets located around the 1.0242 level, which corresponds to the 161.8% Fibonacci level.
The wave pattern of the GBP/USD instrument suggests a decline within a new downtrend segment. The most that the British pound can expect in the near future is the formation of wave 2 or b. However, as we can see, even with a corrective wave, there are still significant issues. At this time, I would not recommend opening new short positions, but I also do not recommend buying, as the corrective wave may turn out to be quite weak.