2026 Will Be a Continuation for the Dollar: Part 2

[Ben Graham]

It is important to specifically address the Federal Reserve's monetary policy. Market participants are currently in no doubt that its easing will continue. The pace and timing of this easing are uncertain. However, the November labor market and unemployment data showed only the very beginning of a recession. The inflation report indicated a slowdown, allowing the Fed to utilize additional "medicines" to address the labor market. These additional measures will be new rounds of monetary policy easing.

Certainly, not only the Fed's policy matters, but also those of the European Central Bank and the Bank of England. The British central bank also plans several rounds of easing, but the ECB is more inclined to tighten if inflation accelerates at some point. Therefore, while the U.S. currency will decline, the British pound will find it more challenging to rise against the dollar compared to the euro.

I don't want to discuss May just yet, as there are still five months until Jerome Powell's departure. However, I do not rule out the possibility that, at some point, Donald Trump may attempt to dismiss another FOMC member who is reluctant to vote for a rate cut. How will this new narrative of dismissals via Truth Social, which has yet to begin, conclude?

I also want to add that a weak dollar is beneficial for America. Previous administrations have overlooked this point, but Trump sees it as a key issue for weak exports. Consequently, U.S. authorities will be inclined to devalue the American currency or, at the very least, will not be inclined to support it. A Reuters survey showed that most economists lean toward the continuation of the dollar's decline next year.

Analysts also note that in 2026, many countries around the world may demonstrate stronger economic growth than the U.S. This will partially reduce interest in the American economy and, consequently, in the dollar as a conduit for investment in U.S. assets. At the same time, economists do not expect fantastic results from the U.S. economy. Many still forecast a downturn or even a recession. To some extent, the dollar supports the growth of the U.S. stock market, but this factor may only have a temporary impact. Overall, I do not see any compelling reasons for the market to buy U.S. currency at this time.

Wave Analysis for EUR/USD:

Based on my analysis of EUR/USD, I conclude that the instrument continues to develop an upward trend segment. Donald Trump's policies and the Federal Reserve's monetary policy remain significant factors in the long-term decline of the U.S. currency. The targets for the current trend segment could extend up to the 25th figure. The current upward wave collection is beginning to develop, and I hope we are currently witnessing the formation of an impulse wave collection, which is part of the global wave 5. In this case, we should expect growth with targets around 1.1825 and 1.1926, corresponding to 200.0% and 261.8% on the Fibonacci scale.

Wave Analysis for GBP/USD:

The wave structure for GBP/USD has changed. The downward corrective structure a-b-c-d-e in C at 4 appears to be complete, as does the entire wave 4. If this is indeed the case, I expect the main trend segment to resume construction, with initial targets around the 38 and 40 levels.

In the short term, I anticipated the formation of wave 3 or C with targets around 1.3280 and 1.3360, which equates to 76.4% and 61.8% on the Fibonacci scale. These targets have been reached. Wave 3 or C continues its formation, and there is currently a fourth attempt to break the 1.3450 mark, which corresponds to 61.8% on the Fibonacci scale.

Key Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often lead to changes.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There can never be 100% certainty in market direction. Do not forget to use protective stop-loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

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