As mentioned in the previous article, the Federal Reserve has not completely abandoned the option of raising interest rates in case inflation accelerates again. In my opinion, this is entirely possible, not only in the United States but also in the European Union. In Europe, inflation has dropped quite sharply in the last few months. The European Central Bank, which began increasing rates later than the other central banks, raised them much more modestly than the Fed and the Bank of England, achieving a maximum decline in inflation much faster than the United States or the United Kingdom. Certainly, the economies of these countries differ from each other, and it would be foolish to expect inflation to fall the same way. Nevertheless, I doubt that inflation in the EU will reach 2% first.
In America, the economy remains strong, the labor market and unemployment are solidly rated as "4." In a way, this hinders inflation from falling more rapidly, as a strong economy and labor market are more likely to cause inflation to accelerate. In addition, energy prices have recently fallen, which has also affected the slowing pace of price growth. Therefore, the Fed does not want to announced that the rate will no longer increase. Everyone understands that inflation can rebound just as the exchange rate of any instrument or currency pair.
On Friday, the President of the Federal Reserve Bank of Chicago, Charles Evans, said that the central bank is confidently moving towards its goal of 2% inflation, and everything is going according to plan. He took note of the strength of the labor market and the economy, adding that the central bank is ready to address all the problems and shocks it may face. He also pointed out that a potential economic crisis in China is a risk to the U.S. economy. There are still many risks, so the Fed is not in a rush to declare victory over inflation.
In conclusion, the rhetoric of FOMC members remains unclear. No one currently knows how inflation will turn out in the next few months, so no one can provide a clear forecast for interest rates at the moment. The market is left to speculate on what awaits it in the future.
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 mark, 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. A successful attempt to break the 1.0851 level could signal a decline in the instrument.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend. The most that we can count on is a correction. At this time, I can recommend selling the instrument with targets below the 1.2068 mark because wave 2 or b will eventually end and at any time, and it could happen at any moment. The longer it takes, the stronger the fall. The narrowing triangle is a harbinger to the end of the movement.