One Day Before the ECB Meeting

Ben Graham · Outubro 29

In addition to the FOMC meeting, we have another interesting "with a stretch" event this week. Why "with a stretch"? As I mentioned in my previous review, the Fed is 99% likely to make the most obvious decision that the market has been anticipating all October, and Jerome Powell will limit his comments at the press conference to standard phrases and remarks. Personally, I do not expect any loud statements or unexpected turns.

The situation with the European Central Bank meeting is somewhat similar. For an entire year, the ECB has been easing monetary policy at every meeting, but times have changed. Inflation has stabilized around the target level, so additional monetary policy easing is not required at this time.

This suggests that the ECB will keep all three interest rates unchanged on Thursday. What can Christine Lagarde announce at the press conference? It is very simple. She will likely state that, in the event of further slowing in EU inflation, the ECB will be prepared to conduct one or two more rounds of easing. If inflation begins to rise and move away from 2%, the ECB will also be ready to tighten policy, but probably not until next year. In other words, the ECB will react to economic data just as the Fed does. The difference is that the Fed has only one path—easing—while the ECB has a "branch of opportunities."

Since the ECB's future decisions depend on the inflation indicator, it would be foolish not to reconsider it again. Starting in May of this year, the consumer price index in the Eurozone has been increasing. In May, it was 1.9%; in September, it reached 2.2%. The acceleration of consumer prices is very slow, so it does not cause any concerns or worries. It should be understood that inflation cannot remain at the same level every month. It will fluctuate, just like any other indicator.

Therefore, as long as inflation remains conditionally below 2.5%, there is no need for panic. If inflation exceeds this level (which could happen next year), the ECB might consider tightening its policy. However, any changes in the ECB's policy are not on the immediate horizon.

Wave Picture for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that the instrument continues to build an upward section of the trend. Currently, the market is in a pause, but Donald Trump's policies and the Fed remain significant factors in the US dollar's decline. The targets for the current section of the trend may reach the 25 figure. Right now, we can observe the formation of corrective wave 4, which appears very complex and elongated. Therefore, I continue to consider only purchases in the near future. By the end of the year, I expect the euro to rise to 1.2245, corresponding to 200.0% on the Fibonacci scale.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has changed. We continue to deal with an upward, impulsive section of the trend, but its internal wave structure is becoming more complex. Wave 4 is taking on a three-wave form, and its structure is much more extended than that of wave 2. Another downward corrective structure is nearing completion, but it could complicate several times more. If this is indeed the case, the instrument's rise within the global wave structure may resume with initial targets around the 38 and 40 figures. However, the correction is still ongoing at this time.

Key Principles of My Analysis:

Wave structures should be simple and understandable. Complex structures are difficult to play; they often carry changes.
If there is no confidence in what is happening in the market, it is better not to enter it.
There is never 100% certainty in the direction of movement. Do not forget about protective stop-loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.

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