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11.12.202318:46 Forex Analysis & Reviews: The Fed will start lowering the rate earlier, but not by much

This week, meetings of all central banks will be held, which are of interest to us when analyzing the EUR/USD and GBP/USD pairs. As I mentioned over the weekend, the Federal Reserve (FRS) meeting should generate the greatest interest since it is the central bank of the country with the world's largest economy. The dollar is more abundant in the world than any other currency, so it has always attracted special attention from the market.

What to expect from the FOMC at the last meeting of the year? In my view, there is nothing significant to expect. The "forecasts will be updated, and that will be the end of interesting events. Jerome Powell is unlikely to hint at the imminent start of easing policy, and the interest rate, with a probability of almost 100%, will not change. By the way, expectations of maintaining the rate are not only mine. The well-known CME FedWatch tool shows that no one in the market believes the rate will change in December.

Meanwhile, analysts from Goldman Sachs have stated that they are changing their forecast regarding the start of the Fed's easing policy. Previously, they assumed that the first-rate cut would happen in the 4th quarter of next year; now they are moving the forecast to the 3rd quarter. They also noted that the recent inflation data is "very encouraging," so they had to lower their forecast for core inflation. And everyone already knows that the lower inflation falls, the less reason there is for the regulator to keep the rate high, as it has a restraining effect on the economy. While the fight against inflation was ongoing, economic growth could be sacrificed. Now, as inflation approaches the target mark, the regulator no longer needs to have a cooling effect on the economy.

However, whether it happens a quarter later or a quarter earlier doesn't matter much for the dollar, euro, or pound. Next year, the ECB and the Bank of England will also start lowering their rates, so all three currencies will be in equal conditions. I fully admit that we will not see super movements this week since none of the three central banks is expected to make important decisions. The inflation report is always interesting, but even that can turn out to be dull.

Based on the analysis conducted, I conclude that the construction of a bearish wave set continues. The targets around the 1.0463 mark have been perfectly worked out, and the unsuccessful attempt to break this mark indicates a transition to the construction of a corrective wave. Wave 2 or b has taken on a completed form, so I expect the construction of an impulsive descending wave 3 or c with a significant decrease in the pair soon. I still recommend selling with targets below the low of wave 1 or a. At this time, wave 2 or b can be considered complete.

The wave pattern of the pound/dollar pair suggests a decline within the downtrend. The maximum the pound can expect is a correction. At this time, I recommend selling the pair with targets below the level of 1.2068 because wave 2 or b must ultimately be completed and can be completed at any time. The longer it takes, the stronger the fall of the pound will be. The narrowing triangle is a precursor to the completion of the movement.

*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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