European inflation remains a headache for the European Central Bank. In general, there is nothing the central bank can do about the high rate of price growth for now. The rate rose to 3.5%, but it will take some time for the Consumer Price Index to react with a new decline to this tightening. A new inflation report will be released on Friday. And the market does not expect a strong decline. The current inflation rate in the EU is 8.6%. Tomorrow it may drop to 8.5%. This is clearly not the rate of decline that the ECB is counting on, raising rates by 50 points each meeting. Inflation falls slowly, much more slowly than the rate itself rises. The pressure on the European economy is getting stronger and stronger, and recent events around the Credit Suisse bank make many analysts suggest the introduction of stimulus to the banking system and the economy instead of tightening. I believe that at the current stage, such assumptions are groundless, but as time goes on, there are more and more doubts that the ECB will be able to achieve a return of inflation to 2% in the foreseeable future.
ECB President Christine Lagarde limited herself to general phrases at the press conference. She said price pressures (core inflation) remain strong, with inflation in the services sector driven by higher energy prices. She also noted that most inflation indicators show 2% in the long term, and risks to the indicator's forecasts remain down. I think that after the Credit Suisse situation, Lagarde changed her approach a bit and tried to be as soft as possible in terms.
Lagarde also noted that the EU banking sector is now much stronger than in 2008, but investors and analysts were still unhappy with her words. She was expected to comment on the central bank's further actions. We waited for hints on the size of the rate hike in May. The market expected optimistic forecasts for inflation and so on. And they waited for nothing. Based on this, the very weak dynamics of EUR/USD is quite natural. The market traded much more actively on Monday, when we found out about the bankruptcies of American banks, and on Wednesday, when Credit Suisse's problems surfaced in the media.
Friday will also be pretty boring for the markets, unless there are new reports of problems or the collapse of a bank or banks. Analysts and journalists have already called this process a "bank fall" and are comparing the current situation with the situation of 2008, when the whole world was overwhelmed by the mortgage crisis. In my opinion, everything is not as bad as it could be, and it's too early to panic. We can expect that both instruments will be influenced by economic data in the near future, and not influenced by news of a larger scale. I am bearish for both instruments.
Based on the analysis, I conclude that the construction of the uptrend is completed. So now we can consider short positions with targets located near the estimated level of 1.0284, which corresponds to 50.0% Fibonacci. At this time, a correctional wave 2 or b can still be built, in which case it will take a more extended form. It is better to open shorts now on MACD's bearish signals.
The wave pattern of GBP/USD suggests the construction of a downtrend segment. We can consider selling at this time with targets near 1.1641, which equates to a Fibonacci 38.2% reversal of the MACD to the downside. A Stop Loss order could have been placed above the peaks of waves e and b. Wave c may take a less extended form, but for now I expect a decrease by another 300-400 points at least (from current levels).
