The ECB May Raise Rates Next Year

[Redator]

In recent years, central banks have been preoccupied with monetary easing, and few in the market have considered the question: who will be the first to raise interest rates again? That central bank could potentially be the European Central Bank (ECB), which was the first to cut rates to "neutral" levels and the first to return inflation to its target. Therefore, a moment may come in the future when inflation starts to accelerate again, prompting the ECB to take a more hawkish stance.

Among major central banks, the ECB appears closest to that point. The Consumer Price Index (CPI) in the eurozone remains slightly above 2%. However, according to ECB President Christine Lagarde and several other policymakers, inflationary risks persist due to factors such as Trump's trade war, rising global energy prices, and continued geopolitical uncertainty. Therefore, an inflation acceleration scenario is not fiction.

Economists at Deutsche Bank also project that inflation will gradually increase over the next 1–2 years. As a result, the ECB could deliver its first interest rate hike since the COVID-19 era by the end of 2026. Of course, this is a long-term prospect, and because global conditions evolve rapidly, forecasting an entire year ahead is questionable.

Still, such forecasts reflect a key point: among the three major central banks that influence EUR/USD and GBP/USD, the ECB may adopt the most hawkish stance. This is very favorable news for the euro, as its overall news backdrop remains relatively strong.

Meanwhile, the Federal Reserve is expected to remain dovish over the next year, and the British pound is also closely tied to this softer tone. Even focusing only on monetary policy, one could argue that demand for the euro and pound will continue to increase, while interest in the U.S. dollar may wane.

Wave Analysis for EUR/USD

According to the analysis of EUR/USD, the pair continues building an upward segment of the trend. The wave structure still depends heavily on developments aligned with Trump's decisions and the internal and foreign policy of the new U.S. administration.

The targets for the current bullish wave may extend as far as the 1.2500 range. A complex corrective wave 4 is currently forming and nearing completion—although it's unfolding in a very intricate manner. The broader bullish framework remains valid.

Therefore, in the near term, I continue to consider only long positions, even though the corrective a-b-c wave structure has not fully concluded yet. By year-end, I expect EUR/USD to rise to 1.2245, which corresponds to the 200.0% Fibonacci.

Wave Analysis for GBP/USD

The wave structure of GBP/USD has changed. The pair remains within a larger upward impulsive move, but its internal structure has become more complex.

Wave 4 is taking shape as a complicated three-wave correction—significantly longer in duration and range than wave 2. At present, we are witnessing the formation of another three-wave corrective structure, which may soon reach completion.

If confirmed, the broader uptrend may resume, with initial upside targets in the 1.3800 to 1.4000 range.

Core Principles of My Analysis:

1. Wave structures should be simple and easy to interpret. Complex patterns are harder to trade and are more prone to change.
2. If you're uncertain about the market's direction, it's better not to enter at all.
3. There is no such thing as 100% certainty in market movement. Always use stop-loss orders.
4. Elliott Wave analysis can be combined with other types of market analysis and trading strategies.

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