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29.03.2023 06:13 PM
The ECB is ready to raise the rate, but at a slower pace

European and British currencies have been in great demand in recent weeks. Although there was a lot of news during this period, I am not completely certain that this context was the cause of the rise of the euro and the pound as well as the fall of the dollar. However, it is now pointless to debate why both pairs have grown so significantly. I will only state that growth in the pound corresponds exactly to the current wave analysis, but it does not for the euro. However, 90% of the time, both pairs display comparable movements, so I anticipate the same dynamics from them soon. If so, both pairs have either begun developing a new upward trend section or are about to begin developing a new downward wave with a good reduction potential.

As I've stated numerous times, the rate debate continues to be crucial for the market. How long the tightening will last in the UK or the European Union, however, is a question to which there is no definitive response. Members of the two central banks continue to predict that interest rates will rise, which might increase demand for the pound and the euro. However, it's uncertain how much more they will grow. Andrew Bailey, the governor of the Bank of England, attempted to respond to this query earlier this week. He said the interest rate shouldn't rise to that of 2008. This indicates that the Bank of England anticipates raising it to 5% or even a little bit higher. We have a directive right here, but what about the ECB?

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The tension in the financial industry may prevent the regulator from raising the rate further, according to ECB Chief Economist Philip Lane. Lane now anticipates that there won't be any further surprises and that the ECB will be able to gradually increase the rate several more times. At the same time, he noted that tensions in the banking industry are easing and that no significant issues are anticipated. Although he agrees with the choice of increasing the rate, Peter Kazimir thinks that the pace needs to be slowed down. The Board of Governors members had decided, according to Kazimir, at their most recent conference not to give the markets any hints about their May meeting. Additionally, Christine Lagarde discussed this right away following the March conference. She stated that no decision has yet been taken by the ECB. Although the regulator does not explicitly state that a rate increase of 50 basis points has already been decided upon, it does not deny the possibility. Kazimir also said that inflation will be a crucial factor in determining the rate. In my opinion, the ECB will tighten monetary policy by 25 basis points, though there may be another 3 or 4. There may still be a rise in the euro because the market is unlikely to have already dealt with this situation (and the pound, too).

I draw the conclusion that the downward trend section's development is finished based on the analysis. However, the wave analysis for the euro is confusing right now, making it challenging to determine where the pair is in the trend. Even after one wave up, which may be a complicated wave b, a new three-wave pattern of waves down can start to form. Therefore, based on the MACD reversals "up," I suggest cautious purchases with targets close to the 10th figure.

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The wave pattern of the pound/dollar pair is presumed to represent the end of a segment of a downward trend (due solely to the correlation of the euro and the pound). According to the "up" reversals of the MACD indicator, it is possible to take into account purchases with targets higher than the 25-figure range at this moment. The possibility of developing a downward wave e, the targets of which are situated 500–600 points below the current price, is something I do not entirely rule out, though.

Chin Zhao,
Analytical expert of InstaForex
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