Yesterday, we discussed the FOMC minutes, which were supposed to be released in the evening, but it turned out that the ECB minutes were more interesting. However, let’s not get ahead of ourselves and start by reviewing the key points of the FOMC minutes. In the American document, it was stated that all members of the Board of Governors supported caution in future actions. Everyone agreed that the current level might be sufficient to bring inflation back to 2%, but inflation risks remain on the rise, which could necessitate additional measures.
Slightly earlier, Raphael Bostic, Lorie Logan, and Peter Jefferson expressed their favor for the completion of the monetary policy tightening process. All of them noted the rise in the yields of 10-year US bonds, which could be an additional tool for “cooling” the economy and reducing inflation. However, the conflict in the Middle East and rising oil prices allow for a potential acceleration of inflation worldwide. Most FOMC members support another rate hike in the upcoming meetings, as well as keeping the rate at its peak for the next two years.
It is worth noting that the Federal Reserve can easily afford another rate hike. Personally, I have no doubt that we will see further tightening in 2023, as today’s inflation report for September did not please the Federal Reserve or the government. The Consumer Price Index remained at 3.7% year on year, which is nearly twice as high as the regulator expected. Therefore, additional tightening is required, and recent reports on the labor market, unemployment, and GDP allow the Federal Reserve to raise rates even a few more times.
Undoubtedly, each new rate hike, when the rate is already at 5.5%, is an additional and not entirely appropriate blow to the economy. But if the economy is doing very well, why prolong the fight against high inflation when it’s easier to raise the rate once more? In Europe or the UK, such an option simply does not exist because their economies are already on the verge of recession and show virtually no growth.
Based on all of the above, I can draw several conclusions. The Federal Reserve’s stance has not changed significantly. In September, inflation was neither pleasing nor disappointing. The rise of the American currency may be temporary. Waves 2 or b for both pairs do not appear to be completed.
Following the analysis, I conclude that the construction of a bearish wave set continues. The targets around the 1.0463 level have been ideally worked out, and the failed attempt to break this level indicates the market’s readiness to build a corrective wave. In my recent reviews, I warned that closing short positions should be considered because the probability of constructing an upward wave is currently high. A failed attempt to break the 1.0637 level, which corresponds to 100.0% on the Fibonacci scale, will indicate the market’s readiness to resume the decline. In this case, I recommend new pair sales targeting 1.0463.
The wave pattern of the pound/dollar pair suggests a decline within a new downward trend. The maximum the British pound can expect in the near future is the construction of wave 2 or b. However, even with the corrective wave, there are currently significant difficulties. At this point, I would not advise new sales, but I also do not recommend buying, as the corrective wave may turn out to be quite weak.
The material has been provided by InstaForex Company – www.instaforex.com
Yesterday, we discussed the FOMC minutes, which were supposed to be released in the evening, but it turned out that the ECB minutes were more interesting. However, let’s not get ahead of ourselves and start by reviewing the key points of the FOMC minutes. In the American document, it was stated that all members of the Board of Governors supported caution in future actions. Everyone agreed that the current level might be sufficient to bring inflation back to 2%, but inflation risks remain on the rise, which could necessitate additional measures.
Slightly earlier, Raphael Bostic, Lorie Logan, and Peter Jefferson expressed their favor for the completion of the monetary policy tightening process. All of them noted the rise in the yields of 10-year US bonds, which could be an additional tool for “cooling” the economy and reducing inflation. However, the conflict in the Middle East and rising oil prices allow for a potential acceleration of inflation worldwide. Most FOMC members support another rate hike in the upcoming meetings, as well as keeping the rate at its peak for the next two years.
It is worth noting that the Federal Reserve can easily afford another rate hike. Personally, I have no doubt that we will see further tightening in 2023, as today’s inflation report for September did not please the Federal Reserve or the government. The Consumer Price Index remained at 3.7% year on year, which is nearly twice as high as the regulator expected. Therefore, additional tightening is required, and recent reports on the labor market, unemployment, and GDP allow the Federal Reserve to raise rates even a few more times.
Undoubtedly, each new rate hike, when the rate is already at 5.5%, is an additional and not entirely appropriate blow to the economy. But if the economy is doing very well, why prolong the fight against high inflation when it’s easier to raise the rate once more? In Europe or the UK, such an option simply does not exist because their economies are already on the verge of recession and show virtually no growth.
Based on all of the above, I can draw several conclusions. The Federal Reserve’s stance has not changed significantly. In September, inflation was neither pleasing nor disappointing. The rise of the American currency may be temporary. Waves 2 or b for both pairs do not appear to be completed.
Following the analysis, I conclude that the construction of a bearish wave set continues. The targets around the 1.0463 level have been ideally worked out, and the failed attempt to break this level indicates the market’s readiness to build a corrective wave. In my recent reviews, I warned that closing short positions should be considered because the probability of constructing an upward wave is currently high. A failed attempt to break the 1.0637 level, which corresponds to 100.0% on the Fibonacci scale, will indicate the market’s readiness to resume the decline. In this case, I recommend new pair sales targeting 1.0463.
The wave pattern of the pound/dollar pair suggests a decline within a new downward trend. The maximum the British pound can expect in the near future is the construction of wave 2 or b. However, even with the corrective wave, there are currently significant difficulties. At this point, I would not advise new sales, but I also do not recommend buying, as the corrective wave may turn out to be quite weak.
The material has been provided by InstaForex Company – www.instaforex.com
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