The Great Confrontation. Part 2

[Ben Graham]

It should be understood that Jerome Powell refuses to lower the interest rate for a reason. First, he does not have the authority to do so alone. During FOMC votes, he has exactly the same vote as other governors. In other words, if the FOMC does not deem easing necessary, Powell's vote and words will mean nothing. Powell can vote for a rate cut at every meeting, but the other 11 Committee members can vote against it. That is the essence of governors' independence from the chair's opinion.

Second, the Federal Reserve pursues not only economic growth but also price stability and full employment in the United States. Simply put, the Fed, acting as the central bank, guarantees the fulfillment of financial obligations to every American. The Fed — like Robin Hood — is concerned that inflation does not hit the pockets of the poor, and that every American has the opportunity to earn enough for food, a car, and a home.

That is precisely why the Fed long refused to ease policy. Inflation in the US has exceeded the target for several years, the labor market has been "cooling" over the past three years, and unemployment is rising. Under such circumstances, a rate cut would lead not only to faster economic growth and lower unemployment, but also to a new rise in inflation. Unemployment affects about 4% of the population, while high inflation affects everyone. Therefore, the US central bank has had to balance between two fires over the past year. Trump obtained several rounds of easing, but in his view, that was not enough. The Fed continues to try to maintain the balance — to prevent further "cooling" of the labor market while keeping consumer prices under control.

Therefore, it cannot be said under any circumstances that Powell and his colleagues take a principled stance against the president. The Fed performs its functions, and the president intrudes into an area beyond his competence. At one point, Trump realized that threats led nowhere and launched a campaign against members of the FOMC. Recall that under very strange circumstances last summer, Adriana Kugler left her position. A little later, Trump tried to remove another governor, Lisa Cook, and did so via his social network, even without an official decree. However, the first court overturned Trump's decision and reinstated Cook in her post.

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.

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