06.02.2023 07:25 PM
What conclusions can we draw after three meetings?

As a result, meetings of the three central banks took place last week. As analysts and economists have been formulating theories regarding interest rates and the rhetoric of central bank presidents throughout January, this event can be referred to as long-awaited. After the meetings were all concluded, I can state that practically all of the judgments and tones used by the leaders of government regulators were typically predicted by analysts. It wasn't that difficult, though. Nobody questioned the likelihood that the ECB, Bank of England, and Fed would each increase interest rates by 25 basis points. Furthermore, the drop in the value of the euro and the pound cannot be attributed to "dovish" decisions taken by the ECB and the Bank of England. Instead, the Fed took a "dovish" tone, yet the dollar strengthened. I consequently reach the conclusion I anticipated in January. The market anticipated and considered all of the central bank's choices, and when they were made public, it started to make money on the trades it had already opened. As a result, in each of the three examples, we did not observe the movement that would have been apparent from the analysis of the results.

Future inflation reports will now determine how the EUR/USD and GBP/USD pairs turn out. The most optimistic predictions are made for the USA. Since the consumer price index has been falling for six consecutive months, a seventh slowdown is entirely conceivable. The anticipation that inflation will stop decreasing has no basis because the rate has been growing the entire time. Despite dropping for three consecutive months, inflation is still very high. Accordingly, the ECB should increase the rate even further in March. Christine Lagarde said the same thing last week. On this basis, everything regarding the ECB and its rate is evident. In March, it will increase by 50 basis points. Inflation has been falling in the UK for two entire months, although at a significantly slower rate than it has in the US or the EU. It's still higher than 10%. Andrew Bailey expressed confidence last week that the indicator might decline this year. Oil and gasoline costs have undoubtedly decreased over the past six months, but inflation in the US and EU is declining quickly and significantly, whereas it has not done so in the UK. Does the price of energy have a particular impact on British inflation?

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All of the aforementioned information suggests that the Bank of England will be compelled to increase the rate by 50 basis points once more in March. The market's interest in the euro and the pound may revive as a result of these two rate increases. However, if this occurs in a month (two weeks before the following central bank meetings), the pair will have sufficient time to construct the essential corrective structures before attempting to develop new upward trend sections.

I draw the conclusion that the upward trend section's development is finished based on the analysis. As a result, sales with targets close to the Fibonacci level of 1.0350 (261.8%) can now be taken into consideration. There is still a chance that the upward section of the trend will become much more complicated. However, nearly for the first time in recent weeks, a picture that can be regarded as the start of the first downward wave as a part of a new trend segment is visible on the chart.

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The development of a downward trend section is implied by the wave pattern of the pound/dollar pair. Currently, sales with targets at the Fibonacci level of 1.1508 (50.0%) might be taken into account. You can set a stop loss order above the peaks of waves e and b. Everything now depends on the decisions made by the Fed and the Bank of England in March, as well as on economic indicators, particularly those related to inflation. Wave c may take on a less extended form.

Chin Zhao,
Analytical expert of InstaForex
© 2007-2023
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