The Bank of Italy expects a more rapid decline in inflation in the Eurozone
July 23, 2023 4:25 pm
In the upcoming week, the central banks of both the European Union and the United States will convene meetings to discuss monetary policy. Monetary policy and inflation indicators remain a critical topic for the currency market. Inflation directly impacts the peak interest rate, which, in turn, affects the currency’s exchange rate. Thus, even if some believe that there will be no significant decisions made regarding interest rates next week, that is not the case. The European Central Bank (ECB) and the Federal Reserve might refrain from providing specific guidance, making significant statements, or openly revealing their expectations for future rate increases. Nonetheless, any information related to interest rates, which is challenging to predict at this moment, can significantly influence market sentiment.
Recently, it was revealed that inflation in the European Union may slow down faster than expected by the ECB. This statement came from Ignazio Visco, the President of the Bank of Italy. He believes that the cost of energy resources could positively impact the decline in inflation, leading to achieving the target level earlier than anticipated. Although core inflation still raises concerns, prices of various raw materials and natural gas are decreasing. Based on this, core inflation may accelerate toward the 2% target by the year’s end. Visco expressed his opinion that the ECB’s forecast of reaching the 2% target in 2025 might actually occur sooner. He also emphasized the risk of raising the interest rate too high, potentially resulting in a recession or stagnation. Therefore, he stressed the importance of avoiding hasty and overly rigid decisions.
It is important to note that many of ECB’s Governing Council members advocate for raising the interest rate in July, and this matter is nearly decided. However, decisions regarding the September meeting and subsequent ones will heavily rely on statistical data. Earlier, both Joachim Nagel, the President of the German Central Bank, and Klaas Knot, the President of the Dutch Central Bank, expressed uncertainty about tightening policy in the autumn.
Considering the above, a significant decline in inflation in July and August might lead Christine Lagarde and her colleagues to consider pausing in September. If this happens, the demand for the euro may start to decrease as soon as signs of a “pause” become apparent.
Based on the conducted analysis, the construction of the upward wave set is complete. I still find the targets in the range of 1.0500-1.0600 quite realistic and recommend selling the instrument with these targets. The a-b-c structure appears comprehensive and convincing, and the close below the level of 1.1172 indirectly confirms this. Therefore, I continue to advise cautious selling of the instrument with targets near 1.1034. At present, buying is considered quite risky, but above the level of 1.1172, it will appear more attractive.
The wave pattern for the GBP/USD pair indicates a decline in the upcoming weeks. The crucial aspect at present is to understand the ongoing scenario: whether the fourth wave is being constructed in the upward segment or if the first wave is forming in a new downward trend. The successful attempt to break the level of 1.3084 (from top to bottom) led readers to open short positions, as mentioned in my recent reviews. Currently, the first target for the instrument is at the level of 1.2840, which has already been reached. An unsuccessful attempt to break this level currently suggests a formation of an upward wave. However, if the attempt proves successful on Monday-Tuesday, the decline in quotes may continue as part of the first wave in the minimum necessary three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
In the upcoming week, the central banks of both the European Union and the United States will convene meetings to discuss monetary policy. Monetary policy and inflation indicators remain a critical topic for the currency market. Inflation directly impacts the peak interest rate, which, in turn, affects the currency’s exchange rate. Thus, even if some believe that there will be no significant decisions made regarding interest rates next week, that is not the case. The European Central Bank (ECB) and the Federal Reserve might refrain from providing specific guidance, making significant statements, or openly revealing their expectations for future rate increases. Nonetheless, any information related to interest rates, which is challenging to predict at this moment, can significantly influence market sentiment.
Recently, it was revealed that inflation in the European Union may slow down faster than expected by the ECB. This statement came from Ignazio Visco, the President of the Bank of Italy. He believes that the cost of energy resources could positively impact the decline in inflation, leading to achieving the target level earlier than anticipated. Although core inflation still raises concerns, prices of various raw materials and natural gas are decreasing. Based on this, core inflation may accelerate toward the 2% target by the year’s end. Visco expressed his opinion that the ECB’s forecast of reaching the 2% target in 2025 might actually occur sooner. He also emphasized the risk of raising the interest rate too high, potentially resulting in a recession or stagnation. Therefore, he stressed the importance of avoiding hasty and overly rigid decisions.
It is important to note that many of ECB’s Governing Council members advocate for raising the interest rate in July, and this matter is nearly decided. However, decisions regarding the September meeting and subsequent ones will heavily rely on statistical data. Earlier, both Joachim Nagel, the President of the German Central Bank, and Klaas Knot, the President of the Dutch Central Bank, expressed uncertainty about tightening policy in the autumn.
Considering the above, a significant decline in inflation in July and August might lead Christine Lagarde and her colleagues to consider pausing in September. If this happens, the demand for the euro may start to decrease as soon as signs of a “pause” become apparent.
Based on the conducted analysis, the construction of the upward wave set is complete. I still find the targets in the range of 1.0500-1.0600 quite realistic and recommend selling the instrument with these targets. The a-b-c structure appears comprehensive and convincing, and the close below the level of 1.1172 indirectly confirms this. Therefore, I continue to advise cautious selling of the instrument with targets near 1.1034. At present, buying is considered quite risky, but above the level of 1.1172, it will appear more attractive.
The wave pattern for the GBP/USD pair indicates a decline in the upcoming weeks. The crucial aspect at present is to understand the ongoing scenario: whether the fourth wave is being constructed in the upward segment or if the first wave is forming in a new downward trend. The successful attempt to break the level of 1.3084 (from top to bottom) led readers to open short positions, as mentioned in my recent reviews. Currently, the first target for the instrument is at the level of 1.2840, which has already been reached. An unsuccessful attempt to break this level currently suggests a formation of an upward wave. However, if the attempt proves successful on Monday-Tuesday, the decline in quotes may continue as part of the first wave in the minimum necessary three-wave structure.
The material has been provided by InstaForex Company – www.instaforex.com
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