The new trading week started on a good note for the dollar, but then the market stopped paying attention to the economic reports, and the currency pairs stopped moving downwards. On Monday the market skillfully executed the ISM Services PMI, on Tuesday it ignored the JOLTS report, and on Wednesday - we had reports on EU inflation and US ADP. There are still two days left until the end of the week, which will be filled with important events. But if the market continues to operate as it did on Tuesday and Wednesday, it will not end well.
I would like to remind you that the wave analysis for both instruments suggests a downtrend and a new descending wave. In the pound's case, it has been quite clear for some time now - a sideways trend. The market is ignoring any news background. On the other hand, the euro's case looks much better, but as I mentioned earlier this week, the market has been quite inconsistent.
On Thursday and Friday, the US economic reports need to be strong so the market can restore the downward movement, which is necessary according to the current wave analysis. If they turn out to be weak, we will see the formation of a new corrective wave.
Meanwhile, the debates around the Federal Reserve are not subsiding. Last week, Raphael Bostic mentioned one rate cut for 2024, while his colleague Austan Goolsbee mentioned three. This week, Mary Daly, Michelle Bowman, and Loretta Mester have spoken. All three mentioned that they support three rounds of rate cuts, which could stop the market from opening new long positions. In fact, three rounds of easing are still much less than what the market expected a couple of months ago. Based on this, I believe that the dollar should strengthen over the next few months. Jerome Powell and Goolsbee were scheduled to speak on Wednesday. The dollar will need some kind of support from the Fed chair.
Economists at UBS expect three rounds of cuts in 2024. However, their forecast for 2025 differs from most other forecasts. Take note that Switzerland expects five rounds of easing. But I wouldn't look too far ahead into early 2024. It's better to focus on the nearest perspective for now. And the near-term outlook is that inflation in the United States is not decreasing, and there are many doubts about the first rate cut in June.
Wave analysis for EUR/USD:Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Waves 2 or b and 2 in 3 or c are complete, so in the near future, I expect an impulsive downward wave 3 in 3 or c to form with a significant decline in the instrument. I am considering short positions with targets near the 1.0462 mark, which corresponds to 127.2% Fibonacci.
The wave pattern of the GBP/USD instrument suggests a decline. I am considering selling the instrument with targets below the 1.2039 level, because I believe that wave 3 or c will start sooner or later. However, unless we can confirm that wave 2 or b ends, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% Fibonacci. The quotes haven't moved far away from the peaks, so we cannot confirm the start of the wave 3 or c.
Key principles of my analysis:Wave structures should be simple and understandable. Complex structures are difficult to work with, and they often bring changes.
If you are not confident about the market's movement, it would be better not to enter it.
We cannot guarantee the direction of movement. Don't forget about Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.