विदेशी मुद्रा विश्लेषण और समीक्षा: 27.03.2023

27.03.2023 11:59 PM

James Bullard: FOMC will raise rates one more time in the near future.

Earlier, I tried to figure out what we should do in the near future. The conclusions were made as follows: if we start only from wave markings, then there are slightly more chances of building an uptrend section. This is also supported by the fact that the FOMC rate is unlikely to grow much from the current value during the remainder of 2023. Inflation in the US has already dropped to 6% and is likely to continue slowing. The economy is strong, as the latest GDP and labor market reports show. Only unemployment has increased by 0.2% in the last month, but this is absolutely not scary, since it still remains close to its low for 50 years.

So now the Federal Reserve has no reason to "run after the locomotive" and continue to raise rates simply because inflation has not yet fallen to 2%. One of the most powerful FOMC hawks, James Bullard, said on Friday that there is a possibility of disinflation in America for 2023. He expressed hope that the Fed will not worry about financial stresses in the near future (meaning the banking crisis), but will focus on a strong economy. He noted that the probability of easing financial stress is 80%, and soon the markets and the central bank will again pay more attention to the problem of high inflation, ceasing to keep in mind the collapse of three banks. The probability of a recession in the American economy, according to Bullard, is very low. The probability of a global financial crisis is even lower. If necessary, the Fed has a sufficient number of tools to extinguish the "financial fire".

Also, the president of the St. Louis Fed said that the rate will rise one more time this year, but has the potential to rise to 5.75% (currently 5.00%). He said that the rate would go up another 25 basis points in May or June. Proceeding from this the market got quite a concrete signal about the completion of the monetary tightening cycle, while in Great Britain and the European Union there is no talk about it ending in the near future. This factor can help the European and the pound to rise in the coming months. In this case, the wave patterns and news background will not conflict with each other.

This week, my advice is to pay attention to the GDP reports of the UK and the US (just to be sure of the strength of the US economy and the weakness of the British one) and also to the inflation report of the European Union, which may show a significant slowdown of the main index and a new growth of the base. Such values could force the European Central Bank to continue raising interest rates in 50 basis point increments.

Based on the analysis, I conclude that the construction of the downtrend section is completed. However, the euro's wave pattern is quite confusing, and now it is difficult to say which part of the trend the instrument is in. Even after one upward wave (which might be a complex b wave) there might be a new downward three-wave structure. Therefore, be careful when buying with targets around the 10th figure on the MACD's bullish reversals.

The wave pattern of GBP/USD implies that a downtrend has been built (exclusively due to the euro and pound correlation). At this time, you can consider long positions with targets above the 25th figure, on the MACD's bullish reversal. However, don't disregard the option of building a descending wave e, whose targets are located 500-600 pips below the current price.

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