The Great Confrontation. Part 3

[Ben Graham]

As of last autumn, only three people on the FOMC were prepared at nearly every meeting to vote in favor of policy easing: Christopher Waller, Michelle Bowman, and the Committee's new member, Stephen Miran. It is not hard to guess that all three were brought into the Committee by Donald Trump himself. However, three votes are insufficient for the Committee to cut the rate to the levels Trump wants, which, I remind you, are around 2%.

Jerome Powell is due to step down as Fed Chair in May 2026, but he will remain a member of the FOMC. Court proceedings may last several months or even years. One may assume there is little point left in trying to remove Powell through the courts, yet for Trump, there is a motive. He wants to remove from the Committee a person who openly disregarded his views and even ignored them while invoking his own authority and mandate. That is the purported purpose of this whole story about alleged embezzlement during the renovation of the Fed buildings.

It is currently known that Powell must appear before the court, not as part of a trial but to testify before a grand jury. The jurors will have to decide whether Powell is guilty and whether a full trial is required. Powell has already made initial comments. According to him, the legal proceedings were initiated solely to exert pressure on the Fed. "I have deep respect for the rule of law and the principle of accountability. No one, including me, can stand above the law. However, this unprecedented step by the presidential administration should be seen in the context of ongoing pressure aimed at influencing monetary policy," Powell said. "The threat of criminal charges is a consequence of the Fed setting interest rates based on what serves the public interest, not on the wishes of the president," the Fed chair stated.

Based on all of the above, as I wrote earlier, Trump has not abandoned the idea of bringing the Fed under his control, because his foreign and trade policies can severely damage the U.S. economy — and already have, in the form of a weakening labor market, rising unemployment, and higher inflation. If Trump wins this confrontation, confidence in the U.S. currency will collapse, as investors realize that Trump controls the dollar. And the U.S. president (as he has said many times) wants a cheap dollar. Consequently, in almost any scenario, the U.S. currency will tend to depreciate.

Wave pattern — EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward trend. Donald Trump's policy and the Fed's monetary policy remain significant factors in the long-term decline of the U.S. currency. Targets of the current trend segment may extend to the 25th figure. The current upward wave set may be complete, so the instrument faces a near-term decline. The trend segment that began on November 5 may still take on a five-wave appearance, but right now it is, in any case, a corrective wave.

Wave pattern — GBP/USD:

The wave picture of GBP/USD has changed. The downward corrective structure a-b-c-d-e in C of 4 appears to be complete, as does the whole wave 4. If this is indeed the case, I expect the main trend segment to resume its development with initial targets around the 38 and 40 figures. In the short term, I expected wave 3 or c to form, with targets near 1.3280 and 1.3360, which correspond to 76.4% and 61.8% on the Fibonacci scale. These targets have been reached. Wave 3 or C has presumably completed its formation, so in the near term, a downward wave or a set of waves may develop.

Main principles of my analysis:

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

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