January Will Be Positive for the Dollar. Is That So?

[Ben Graham]

The next Fed meeting is scheduled for January 28, and market participants are already considering the central bank's decision on rates. By the end of 2025, all market focus will be on FOMC rates. Even reports on the labor market, inflation, and unemployment are viewed through the lens of the rates. The U.S. dollar remains a cornerstone of the global financial system, despite how many countries want to rid themselves of dollar dependency. Perhaps in 50 or 100 years, the world will overcome "dollar addiction," but there is still a long way to go. Therefore, it is entirely justified that most traders and investors primarily monitor the actions of the Federal Reserve rather than those of the Bank of England or the Bank of Japan.

So, it's the holidays, and the market is focused on predicting the next FOMC meeting. I should note that most surveyed economists and investors do not expect a "dovish" decision at the next meeting. The probability of a rate cut, according to the CME FedWatch tool, is currently only 15%. In my view, this forecast is not worth much, as the focus will be on the reports on the labor market, unemployment, and inflation for December. It is based on this data that the Fed will make its decision, and Jerome Powell has not given any assurances about taking a pause in January. He merely stated that a pause would be appropriate, but I remind you that in December, the U.S. central bank made its decision while being in a complete information vacuum. The data on the labor market, unemployment, and inflation for November were released later.

Therefore, given the current market trend, demand for U.S. currency may continue to decline next month. If we factor in the wave pattern, the dollar may continue to decline next month. Given the current market sentiment on the Fed's interest rate decision in January, the dollar may have a stable month. When it comes to economic data from the U.S., it will again be extremely difficult for the U.S. currency to hold its current position. In my opinion, at least 3 out of 4 factors indicate a continuation of the decline of the U.S. currency.

Wave Pattern for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that the instrument continues to build a bullish segment of the trend. The policies of Donald Trump and the Fed's monetary policy remain significant factors in the long-term decline of the U.S. currency. The targets of the current trend segment may extend up to the 25th figure. The current upward wave pattern is starting to develop, and I hope we are witnessing the formation of an impulse wave set that is part of the global wave 5. In this case, we should expect growth with targets around the marks of 1.1825 and 1.1926, corresponding to 200.0% and 261.8% on the Fibonacci retracement.

Wave Pattern for GBP/USD:

The wave pattern of the GBP/USD instrument has changed. The downward corrective structure a-b-c-d-e in C of 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 its formation with initial targets around 38 and 40 figures.

In the short term, I anticipated the building of wave 3 or c, with targets around the marks of 1.3280 and 1.3360, which correspond to 76.4% and 61.8% on the Fibonacci retracement. These targets have been reached. Wave 3 or c is continuing its formation, and at this time, a fourth attempt to break the mark of 1.3450, which matches 61.8% on the Fibonacci retracement, is being made. The target levels for the movement are 1.3550 and 1.3720.

Core Principles of My Analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to play and often undergo changes.
2. If there is market uncertainty, it is better not to enter.
3. There is never 100% confidence in the direction of movement. Don't forget about protective stop-loss orders.
4. Wave analysis can be combined with other forms of analysis and trading strategies.

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