At the moment, the foreign exchange market is closely monitoring the actions of central banks, as the “week of meetings” has begun. The first was the ECB, which raised its interest rate by 75 basis points today. Now I am waiting for the same decision from the Bank of England and the Fed. Over the past few weeks, the demand for the euro and the pound has been constantly increasing, which allowed both instruments to build three ascending waves. However, these wave structures are completely free to be corrective, that is, three-wave, and can already complete their construction. Thus, no matter how much I would like to start active purchases of these instruments now, I would advise you to approach any transactions carefully.
Wave analysis now does not clearly answer the question of what to expect from both instruments in the near future. The euro and the pound may continue to build an upward trend section, which may take a five-wave form. For this, of course, we need an appropriate news background favorable for the euro and the pound. In my opinion, currencies will have problems with this, since I don’t expect anything positive from the economies of the UK and the European Union right now. But the American economy is beaming with positivity. GDP in the third quarter was +2.6% q/q. And although the market expected approximately this value, it should be noted that the US economy is growing again, although the previous two quarters were negative. What does this GDP report give to the dollar and the Fed?
First of all, it should be noted that the good state of the economy is an extra reason to continue raising the rate. The unemployment rate in the US remains at its lowest level in 50 years, Nonfarm Payrolls every month indicates a good state of the labor market, and the economy, as we found out yesterday, is growing. What else is needed to continue tightening monetary policy? At the same time, American inflation (unlike European or British) began to slow down, which is also very good. Thus, all the trumps are in the hands of the American dollar. That is why I am quite realistically considering the option of resuming the construction of a downward trend section.
Of course, it is best to get your hands on any clear signals that the market is ready to sell the euro and the pound again and then resume selling both. Right now it is quite difficult to say that the third waves have completed their construction, and with them the ascending sections of the trend. Nevertheless, in the next few days, I think it will become clear where the market will move next. I assume that the market could have won back the results of the ECB meeting in advance, then today and at the beginning of next week the demand for the euro and the pound will decrease. Then there will be meetings of the Fed and the Bank of England, and after them it will be possible to assess the position of both instruments and draw conclusions. If we do not see a strong decline, then the ascending sections of the trend will retain their working status and we can expect the third waves to lengthen.
Based on the analysis, I conclude that the construction of an upward trend section has begun after all. At this time, the instrument can build a new impulse wave, so I advise buying with targets located above the estimated mark of 1.0361, which equates to 261.8% by Fibonacci, by MACD reversals “up.”
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