The neutral FOMC protocol did not support the dollar
April 13, 2023 5:23 pm
According to data from the last month, the US dollar was the weakest currency among the G-10. It lost the most value, and at the moment, there is no sign of any increase in demand for it. The recent news background was not disastrous for the American currency. It is worth recalling that the labor market and unemployment remain at a good level and do not indicate a deterioration. Inflation is decreasing rapidly, and GDP for the last two quarters has not been below +3%. Nevertheless, many analysts link the current fall of the dollar to the banking crisis, the consequences of which could be long-lasting. In particular, many discuss the reduction of lending volumes in the US, which will pressure economic growth. Inflation will decrease faster than planned, so the Fed may abandon its rate hike policy sooner and move towards cutting rates more quickly. And for the American currency, this is a “bearish” factor.
At the same time, the ECB in May and at several subsequent meetings will most likely raise the rate by 25 basis points. I have already mentioned that regulators try to change the direction of monetary policy smoothly to avoid shocking the markets. If 50 points raised the rate in March, it would increase by at least 25 in May. At the same time, some ECB members are already talking about the proximity of the end of the tightening process, which fully coincides with my expectations. Both banks will abandon tightening shortly, but the ECB is expected to do this later. Due to this “little later,” demand for the euro currency continues to grow. There are no other reasons or grounds.
Yesterday evening, the minutes of the last Fed meeting were released. It turned out to be neutral and did not contain any important information. FOMC members once again confirmed the target inflation level of 2% and their commitment to achieving the set goal. Many of them noted the severity of the consequences of the banking crisis, and the forecast for the peak rate value was slightly lowered. However, the new target rate level is still considered “sufficiently restrictive.” The banking crisis in the US could even help inflation decrease even faster, but this was not mentioned in the minutes. Nor was there any discussion of possible Fed decisions at the next meeting in May. It became known that only some FOMC members support a rate hike, but their exact number is still being determined.
Based on the analysis, the formation of the uptrend continues, which may only take a three-wave form and end soon. Therefore, selling and buying can now be advised to the same extent. The news background does not answer which direction the pair will move. Wave analysis also needs to provide a clear answer. I recommend cautious purchases in the current situation if the attempt to break through the 1.1033 mark is successful. An unsuccessful attempt to break through the 1.1033 mark will indicate the possibility of opening sales.
The GBP/USD pair’s wave pattern implies the downward trend segment’s completion. The wave markup is currently ambiguous, as is the news background. I do not see factors supporting the British currency in the long term, and now the formation of wave b may begin. A decrease in the pair is more likely, as all waves have recently been roughly the same size. Trading can now be done from the 1.2440 mark, corresponding to 0.0% on Fibonacci. Below it – we sell; above it – we cautiously buy.
The material has been provided by InstaForex Company – www.instaforex.com
According to data from the last month, the US dollar was the weakest currency among the G-10. It lost the most value, and at the moment, there is no sign of any increase in demand for it. The recent news background was not disastrous for the American currency. It is worth recalling that the labor market and unemployment remain at a good level and do not indicate a deterioration. Inflation is decreasing rapidly, and GDP for the last two quarters has not been below +3%. Nevertheless, many analysts link the current fall of the dollar to the banking crisis, the consequences of which could be long-lasting. In particular, many discuss the reduction of lending volumes in the US, which will pressure economic growth. Inflation will decrease faster than planned, so the Fed may abandon its rate hike policy sooner and move towards cutting rates more quickly. And for the American currency, this is a “bearish” factor.
At the same time, the ECB in May and at several subsequent meetings will most likely raise the rate by 25 basis points. I have already mentioned that regulators try to change the direction of monetary policy smoothly to avoid shocking the markets. If 50 points raised the rate in March, it would increase by at least 25 in May. At the same time, some ECB members are already talking about the proximity of the end of the tightening process, which fully coincides with my expectations. Both banks will abandon tightening shortly, but the ECB is expected to do this later. Due to this “little later,” demand for the euro currency continues to grow. There are no other reasons or grounds.
Yesterday evening, the minutes of the last Fed meeting were released. It turned out to be neutral and did not contain any important information. FOMC members once again confirmed the target inflation level of 2% and their commitment to achieving the set goal. Many of them noted the severity of the consequences of the banking crisis, and the forecast for the peak rate value was slightly lowered. However, the new target rate level is still considered “sufficiently restrictive.” The banking crisis in the US could even help inflation decrease even faster, but this was not mentioned in the minutes. Nor was there any discussion of possible Fed decisions at the next meeting in May. It became known that only some FOMC members support a rate hike, but their exact number is still being determined.
Based on the analysis, the formation of the uptrend continues, which may only take a three-wave form and end soon. Therefore, selling and buying can now be advised to the same extent. The news background does not answer which direction the pair will move. Wave analysis also needs to provide a clear answer. I recommend cautious purchases in the current situation if the attempt to break through the 1.1033 mark is successful. An unsuccessful attempt to break through the 1.1033 mark will indicate the possibility of opening sales.
The GBP/USD pair’s wave pattern implies the downward trend segment’s completion. The wave markup is currently ambiguous, as is the news background. I do not see factors supporting the British currency in the long term, and now the formation of wave b may begin. A decrease in the pair is more likely, as all waves have recently been roughly the same size. Trading can now be done from the 1.2440 mark, corresponding to 0.0% on Fibonacci. Below it – we sell; above it – we cautiously buy.
The material has been provided by InstaForex Company – www.instaforex.com
Related Posts: