I thoroughly analyzed the US inflation data for two days. I concluded that the dollar's decline appears disproportionate to the value observed by the markets. ING analysts share my opinion, stating that the dollar's recent decline was too strong. ING economists believe that in order for the dollar to fall further, business activity should show a sharp pivot, with inflation taking a back seat. They also suggest that the decline in indicators such as retail sales could exacerbate the inflation downturn, leading the Federal Reserve to ease monetary policy sooner than planned. Quite unexpectedly, the dollar is losing ground against both the pound and the euro. Only the wave analysis continues to indicate a potential increase in its value.
The European Commission just published its quarterly economic report. It says that economic growth forecasts for 2023-2024 have been lowered, but the statement emphasizes that a technical recession can be avoided. Now, it expects 0.6% growth this year (previously 0.8%), 1.2% next year, and 1.6% in 2025. In the fourth quarter, a growth of 0.2% is anticipated. Inflation in 2023 is projected at 5.6%, 3.2% in 2024, and 2.2% in 2025. The report also mentions that high interest rates and inflation have had a more significant impact on the economy than anticipated, although the downturn could have been much more substantial.
What do these figures tell us? Under an optimistic scenario, inflation will return to the target mark no earlier than 2025. The EU economy will continue to slow down in terms of growth, but the crucial point is to avoid a recession – a probability that seems achievable. Is this good news for the euro? Probably, yes. However, not so positive that we should expect a significant surge from it. I believe that wave analysis is currently paramount. The news background is secondary. It is possible to find new reasons for increased demand for the dollar in the market. Therefore, personally, I do not see either instrument significantly above current levels.
Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 level, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling with targets below the low of wave 1 or a. But be cautious with short positions, as wave 2 or b may take a more extended form.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can count on is a correction. At this time, I can already recommend selling the instrument with targets below the 1.2068 level because wave 2 or b will end. It would have already ended if not for a series of disappointing reports from America. Initially, just a good amount of short positions should be enough because there is always a risk of complicating the existing wave.