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12.10.202318:48 Forex Analysis & Reviews: ECB minutes: "Hawkish" rhetoric loses momentum

Yesterday evening, the FOMC minutes were released, and today, in the daytime, we have the ECB minutes. I already talked about the former in the previous article, calling it more expected but less interesting. In this review, I will examine the minutes of the latest ECB meeting. So, where should we begin? First of all, it should be noted that both sets of minutes did not reveal anything groundbreaking. If the American document had a more "hawkish" tone than the market expected, the ECB minutes struck a more "dovish" tone. However, overall, both of these documents did not have a significant impact on market sentiment.

In the European minutes, it was mentioned that some members of the Governing Council voted against raising the interest rate, but the majority decided to tighten monetary policy following the September meeting. The forecast for core inflation over the next two years was revised upward. The subsequent theses seem to show that the ECB itself is not entirely sure. It is assumed that the Monetary Policy Committee is more concerned about the state of the economy and the possibility of a recession than inflation and the timeline for returning it to 2%. A deposit rate of 4% can correspond to a return to the target level of inflation, but it will need to be maintained at this level for an extended period.

Based on all of the above, the following conclusion can be drawn: the rhetoric of the Federal Reserve may have softened slightly, but it remains more "hawkish" than the ECB's rhetoric. Both central banks are concerned about a potential recession, but the Federal Reserve has much less reason to worry. The Federal Reserve's interest rate is much higher and can bring inflation in the United States back to 2% much faster than the ECB's rate can bring inflation back in the EU.

How does all of this relate to wave analysis? I believe that the news background largely favors the strengthening of the American currency. Therefore, we should expect a decline in both pairs in the coming weeks and months. This scenario is in line with the current wave analysis, which implies the construction of a minimum of three downward waves. It may even be five waves, which further worsens the prospects for the euro and the pound by the end of 2023.

Based on the analysis conducted, 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.

*Phân tích thị trường được đăng tải ở đây có nghĩa là để gia tăng nhận thức của bạn, nhưng không đưa ra các chỉ dẫn để thực hiện một giao dịch.

Chin Zhao,
Analytical expert of InstaSpot
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