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22.05.202304:46 Forex Analysis & Reviews: Jerome Powell is considering taking a break

Both instruments continue to fall. The euro - significantly, the pound - not so much. I believe that both instruments should move in a similar manner, so I still expect both to drop. However, on Friday, Federal Reserve Chairman Jerome Powell tried to thwart some plans.

His speech was scheduled for almost evening, but the market couldn't miss such an important event. Following his remarks, demand for the US currency decreased, but very slightly. Both instruments only rose by about 30-35 basis points. Therefore, we can say that the market was sympathetic to the information. And the information was as follows. The Fed chair stated that his department might take a break to assess the impact of the measures already taken on inflation. In other words, there's a 90% chance that the interest rate will not increase at the next meeting. Let me remind you that earlier, several FOMC members allowed for another rate hike, stipulating that there need to be good reasons for this. Powell, however, almost completely ruled out a rate hike at the upcoming meetings.

Exchange Rates 22.05.2023 analysis

And demand for US currency fell only slightly because the market has long expected the end of the tightening program. The Fed warned about this last year, when US inflation started to slow down. If inflation has already fallen to 4.9%, there's indeed no rush to make decisions about the rate. All central banks have voiced information about the long-term effect of the high rate on the economy. Therefore, we can expect the Consumer Price Index to fall regardless of whether the rate will continue to rise or not.

Powell characterized current Fed policy as "restrictive" but adds that they "haven't made any decisions about the extent to which additional policy funding will be appropriate". He also said that the central bank can afford to take a break to assess the impact of high rates on inflation. "The financial stability tools helped to calm conditions in the banking sector. Developments there, on the other hand, are contributing to tighter credit conditions and are likely to weigh on economic growth, hiring and inflation," he said as part of a panel on monetary policy. Powell also mentioned that rates may not have to rise as much as expected to curb inflation.

In my opinion, the European Central Bank and the Bank of England are also approaching a moment of pause. If this is indeed the case, both instruments get an excellent opportunity to continue declining in accordance with the current wave marking. However, I want to remind you that inflation in the European Union is higher than in the US, and in Great Britain - much higher. Therefore, these two banks may decide to raise the rate for longer than the market sees now. Also, another US bank is on the brink of collapse, which may force the Fed to start lowering the rate sooner than the market assumes. These factors will be key for both instruments in the near future.

Exchange Rates 22.05.2023 analysis

Based on the analysis conducted, I conclude that the construction of an uptrend section is completed. Therefore, you can now consider short positions, and the instrument has quite a large room for decline. I think that the targets around 1.0500-1.0600 can be considered quite realistic. With these goals, I advise selling the instrument on downward reversals of the MACD indicator.

The wave pattern of the GBP/USD pair has long implied the construction of a new descending wave. Wave b could be very deep, as all waves have recently been equal. The first wave of the uptrend section may become even more complicated. Failure to breach the 1.2615 mark, which corresponds to 127.2% Fibonacci, indicates the market's readiness for shorts, and a successful attempt to break through the 1.2445 mark, which equals 100.0% Fibonacci, repeats this signal.

*تعینات کیا مراد ہے مارکیٹ کے تجزیات یہاں ارسال کیے جاتے ہیں جس کا مقصد آپ کی بیداری بڑھانا ہے، لیکن تجارت کرنے کے لئے ہدایات دینا نہیں.

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