The ECB has not yet made a final decision on interest rate hikes
November 7, 2023 3:22 am
The most interesting price movement happened on Friday. On the same day, the market received a very important and intriguing set of reports, which allows us to draw certain conclusions. For instance, the U.S. labor market shows signs of losing momentum, unemployment is rising, and business activity is not as strong as one would hope. The Federal Reserve was prepared for this scenario, because it was implied. What is currently throwing a wrench in the works is inflation, which has been accelerating in recent months rather than slowing down. This indicator is making things complicated for the central bank and making both the markets and the Fed more cautious in drawing conclusions and making decisions.
On one hand, the economy is strong and growing, unemployment is still low, and business activity remains around the 50.0 mark. On the other hand, unemployment is rising, payroll numbers in October were disappointing, and PMIs have fallen. Since inflation is increasing, it is necessary to raise interest rates, but the decline in key indicators is making both the markets and the Fed more cautious in drawing conclusions and making decisions.
Meanwhile, everything is much simpler in the European Union. Some members of the European Central Bank’s Governing Council acknowledged that interest rates could still rise in the future, but three-quarters of the Committee stated that there is no longer a need to raise rates. Isabelle Schnabel said that the ECB is moving toward its 2% target and expects to achieve it in 2025. Her words sound reasonable as the current inflation rate stands at 2.9%. But Schnabel also said that the “last mile” of disinflation may be the toughest, so the central bank cannot close the door on rate hikes.
Schnabel also mentioned that there are also risks to inflation, like conflicts in the Middle East.
“Armed conflict in the Middle East is likely to have only a limited impact on global energy prices, provided that hostilities do not spread further,” said the ECB board member. However, it could escalate. The conflict in Ukraine is also unresolved, and Russia is under sanctions. I would say that the likelihood of a rate hike is currently 0%, but in the future, if geopolitical and economic conditions change, such a move is possible.
Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has partially reached the targets around the 1.0463 level, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling the instrument. Initially, exercise caution, as wave 2 or b could theoretically take on an even more prolonged form.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can hope for the pound is a correction. At this time, I can already recommend selling the instrument because wave 2 or b has ultimately taken on a convincing form. Initially, just a good amount of short positions should be enough because there is always a risk of complicating the existing wave.
The material has been provided by InstaForex Company – www.instaforex.com
The most interesting price movement happened on Friday. On the same day, the market received a very important and intriguing set of reports, which allows us to draw certain conclusions. For instance, the U.S. labor market shows signs of losing momentum, unemployment is rising, and business activity is not as strong as one would hope. The Federal Reserve was prepared for this scenario, because it was implied. What is currently throwing a wrench in the works is inflation, which has been accelerating in recent months rather than slowing down. This indicator is making things complicated for the central bank and making both the markets and the Fed more cautious in drawing conclusions and making decisions.
On one hand, the economy is strong and growing, unemployment is still low, and business activity remains around the 50.0 mark. On the other hand, unemployment is rising, payroll numbers in October were disappointing, and PMIs have fallen. Since inflation is increasing, it is necessary to raise interest rates, but the decline in key indicators is making both the markets and the Fed more cautious in drawing conclusions and making decisions.
Meanwhile, everything is much simpler in the European Union. Some members of the European Central Bank’s Governing Council acknowledged that interest rates could still rise in the future, but three-quarters of the Committee stated that there is no longer a need to raise rates. Isabelle Schnabel said that the ECB is moving toward its 2% target and expects to achieve it in 2025. Her words sound reasonable as the current inflation rate stands at 2.9%. But Schnabel also said that the “last mile” of disinflation may be the toughest, so the central bank cannot close the door on rate hikes.
Schnabel also mentioned that there are also risks to inflation, like conflicts in the Middle East.
“Armed conflict in the Middle East is likely to have only a limited impact on global energy prices, provided that hostilities do not spread further,” said the ECB board member. However, it could escalate. The conflict in Ukraine is also unresolved, and Russia is under sanctions. I would say that the likelihood of a rate hike is currently 0%, but in the future, if geopolitical and economic conditions change, such a move is possible.
Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has partially reached the targets around the 1.0463 level, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling the instrument. Initially, exercise caution, as wave 2 or b could theoretically take on an even more prolonged form.
The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can hope for the pound is a correction. At this time, I can already recommend selling the instrument because wave 2 or b has ultimately taken on a convincing form. Initially, just a good amount of short positions should be enough because there is always a risk of complicating the existing wave.
The material has been provided by InstaForex Company – www.instaforex.com
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