January Will Be Positive for the Dollar. Is That So? Part 2

[Ben Graham]

However, the Federal Reserve may decide to keep the interest rate at 3.75%. The main reason is that the central bank wants to give more time for the effects of the 75-basis-point cut to show up in economic indicators. In September, November, and December, the FOMC committee made "dovish" decisions, and in November, the labor market showed the first signs of a recovery. Undoubtedly, this "sick patient" could "flare up" again at any moment. Or perhaps the prescribed treatments may not be enough for recovery. But the Fed's treating physician wants to give the medications more time to have a positive impact on the patient.

As a result, monetary policy parameters will likely remain unchanged in January, regardless of labor market, unemployment, and inflation data. I want to note that the consumer price index has slowed slightly, opening the door for a more significant rate decrease in 2026. However, many economists say November's figure does not reflect the actual pricing situation. In November, many stores and companies held promotions and sales for "Black Friday," which likely affected inflation rates through price reductions.

Will the dollar gain market support if the Fed does not lower the rate? In my view, the absence of a "dovish" decision will not be decisive. The Fed meeting is scheduled for January 28, so for most of the month, the market will trade based on economic data and its own expectations. As we have already established, these expectations are "neutral." It is currently very difficult to expect high figures from U.S. data unless we are talking about artificial growth in the U.S. economy. Other indicators increasingly show results worse than forecasts.

Therefore, at best, demand for the dollar will not decrease even further. The better the reports on the labor market, inflation, and unemployment, the greater the chances for recovery. However, for strong growth, the U.S. currency needs a consistently positive news backdrop, a reversal of the current trend, and global events that may.

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