23.01.2023 05:06 PM
GBP/USD. Analysis for January 23. James Bullard believes that the Fed rate should be raised 3-4 more times.

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The wave markup for the pound/dollar instrument currently appears rather complex, but it doesn't call for any explanations and starts to diverge dramatically from the markup of the euro/dollar instrument. Our five-wave rising trend segment has the form a-b-c-d-e and is most likely already finished. I anticipate that the construction of the downward phase of the trend has already started. This section will at least have three waves, but wave b ended up being too long because of the recent spike in the instrument's quotes. The present upward wave will no longer be regarded as wave b if the price increase persists, and the markup for the entire wave will need to be adjusted. The instrument can decline by 500–600 basis points if the current wave markup is still accurate, but I still expect to build a descending wave.

The Fed rate could increase by an additional 100 basis points.

On Monday, the pound/dollar exchange rate decreased by 60 basis points. A new beginning of quotes from the attained highs has occurred, but it may only be a beginning and not a full-fledged wave C. For the nth time, there should be an increase in demand for US dollars, but the market frequently overlooks these factors. Christine Lagarde used "hawkish" language last week, and interest in the euro was rising. Immediately, 8 or 9 Fed members predicted that rates would rise further, and the value of the dollar kept falling. The US dollar may continue to collapse for a very long time with this mentality, but I sincerely hope that it won't. However, no one has canceled the corrected sets of waves, so I think that the British and European markets may very well expand in 2023. It gets more challenging to use the tool if there are none.

As I previously mentioned, all of the FOMC members who spoke last week agreed that the rate should continue to rise, but they gave different predictions for when it would peak. The rate will increase to between 5 and 5.25%, according to Cleveland resident Loretta Mester, and at the following meeting, she and her colleagues will consider how many more increases are necessary before inflation falls to 2%. The most aggressively inclined "hawk," James Bullard, head of the St. Louis Fed, thinks the rate should increase to 5.25–5.5%. As you can see, there is a change, but one that is not very significant. Perhaps there is general agreement that the rate cannot go below 5% and that if it hits a "restrictive" value, a protracted period during which it will remain high will start. This will be necessary to put constant pressure on commercial, economic, and pricing activities. With the Bank of England, the issue is far less clear-cut because no one can now predict with certainty how many more times its interest rate will increase. According to some analysts, the British regulator may reduce its step in February to 25 basis points.

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Conclusions in general

The building of a downward trend section is still assumed by the wave pattern of the pound/dollar instrument. According to the "down" reversals of the MACD indicator, it is possible to take into account sales with objectives around the level of 1.1508, which corresponds to 50.0% by Fibonacci. The upward portion of the trend is probably over; however, it might yet take a longer form than it does right now. However, you must exercise caution while making sales because the pound has a significant tendency to rise.

The euro/dollar instrument and the picture seem extremely similar at the larger wave scale, which is fortunate because both instruments should move similarly. Currently, the upward correction portion of the trend is almost finished (or has already been completed). If this is the case, a downward portion will likely be built for at least three waves, with the possibility of a dip in the region of figure 15.

Chin Zhao,
Analytical expert of InstaForex
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