Preview of the Fed Meeting

[Ben Graham]

This week, an event could be the "turning point of the second half of 2025" or "the main disappointment of December." As a reminder, on September 17, the Federal Reserve resumed its monetary policy easing cycle and lowered the interest rate again at the October meeting. Let's turn to history to see how the market reacted to the U.S. central bank's "dovish" decisions.

On September 17, the rate was lowered, and the EUR/USD instrument began forming a new downward wave set. On October 28, the rate was lowered by 25 basis points again, and the EUR/USD instrument began building a new downward wave. The next meeting will take place on December 10, and the Fed is likely to lower the rate once more, which could lead to a renewed rise in demand for the U.S. dollar. Doesn't this logic seem flawed?

Let's try to figure out why this is happening. Indeed, one could revert to the old, familiar set of explanations, such as "the market has already priced in the Fed's decision." However, demand for the U.S. dollar has been growing not only on Fed meeting days. It has steadily increased over the past 2.5 months. Only in the last two weeks has the euro slightly recovered, during which we observed a three-wave upward segment of the trend. So why has the demand for the dollar grown despite the FOMC's easing policy or a "shutdown"?

In my opinion, the market is preparing for a new upward trend. Before this trend starts, it is essential to confuse market participants as much as possible, since each participant is out for themselves, and only large players can move the price. This results in a struggle between big players and small ones, with only the large players able to prevail. Small traders are best off following the smart money. This is an old truth that works across all markets. Therefore, the Fed's decision on Wednesday evening is not so important. What matters is how the big capital reacts to it, which we cannot know.

Hence, I rely on the wave analysis. The proposed wave 4 does not look very convincing, suggesting that its internal wave structure may be even more complex. The upward wave set that has formed over the past two weeks does not inspire confidence. If all previous segments appeared corrective, this one is the most corrective of all, as its internal waves are almost identical in size. Therefore, I fully expect history to repeat itself, and we will once again see the dollar rise on the Fed's dovish decision.

However, in the longer term, I still anticipate only the euro to rise and the U.S. dollar to fall. The global upward section of the trend continues to build, and all we have observed in recent months are actions by large capital aimed at confusing everyone.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward segment of the trend. In recent months, the market has paused, but the policies of Donald Trump and the Fed remain significant factors in the future decline of the U.S. currency. The targets of the current trend segment may reach the 25-figure mark. However, the last upward segment of the trend has once again taken on a corrective appearance. Therefore, a minimum downward wave of this segment may now begin, while the maximum may form a new downward corrective wave set.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has changed. We continue to deal with an upward, impulsive segment of the trend, but its internal wave structure has become complicated. The downward corrective structure a-b-c-d-e in C in 4 appears quite complete. If this is indeed the case, I expect the main trend segment to resume its formation, with initial targets around the 38 and 40 levels. However, wave 4 itself may take on a five-wave form.

In the short term, I expected wave 3 or c to form, with targets around 1.3280 and 1.3360, corresponding to the 76.4% and 61.8% Fibonacci levels. These targets have been reached. Wave 3 or c may continue its development, but the current wave set is likely corrective once again. Therefore, a decline at the beginning of next week is also possible, and an attempt to break the 1.3360 level was unsuccessful.

Main Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade, often leading to changes.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There is no absolute certainty in market direction, nor can there ever be. Do not forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

The material has been provided by InstaForex Company - www.instaforex.com