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23.03.2023 07:44 PM
The meetings of the ECB, the Bank of England, and the Fed are over. What conclusions can be drawn?
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The market has been anticipating the central bank meetings in March for a while, and in recent weeks, analysts and market participants have been actively arguing about how much this or that rate will be raised. Furthermore, other viewpoints held that a single or a couple of central banks might even decide against a new tightening of monetary policy. Since four large banks failed in the US and the EU over the past two weeks, the conversation has focused primarily on the Fed and the ECB. A new global financial crisis, similar to the one in 2008, was predicted right away, but the Fed and the ECB assured the market that the previous 15 years had not been in vain and that the banking and financial systems had been greatly strengthened. Therefore, a financial crisis at this time cannot be caused by the failure of a few banks. However, the market has long expected that rates may not rise at all.

We can state right now that each of the three central banks raised rates to the levels that the market was anticipating. This alone leads to the conclusion that neither the euro, the pound, nor the dollar should have experienced an important increase. The last two weeks, however, have shown us the exact opposite scenario. Both the euro and the pound saw a sharp increase in demand. I should also point out that banks have failed not only in the United States but also in the European Union. In other words, the euro and the dollar were roughly equivalent on this basis.

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The euro's wave analysis also prevented significant growth in the pair. As a result, when the British pound rose in a somewhat contentious manner but followed the waves, the euro displayed a remarkable movement. Naturally, we may think of the Fed's program to stimulate the banking sector, which will result in the printing of another $200-300 billion in money and re-inflate the money supply. However, I still advise moving forward from each central bank's monetary policy. Representatives of the ECB and the Bank of England are in the process of slowing down to the bare minimum, although neither central bank made any pronouncements about pausing the rate hike. This does not imply that the next meeting will decide to put an end to the tightening cycle; instead, we might witness another 2-3 rate rises. However, inflation in the European Union and the UK is still very high and is significantly greater than in the US. Thus, the European Union and Britain will not be spared from high rates of consumer price growth by additional 2-3 rate increases of 25 basis points. The target won't be accomplished because both inflation and the rate will continue to be high. What drives a British or European to develop with such preliminary information?

I draw the conclusion that the upward trend section's development is finished based on the analysis. However, the wave analysis for the euro is confusing right now, making it challenging to determine where the pair is in the trend. The development of a new three-wave structure of waves down can start even after one wave up (which may be wave b). I continue to plan for exactly such an event. With targets for sales close to the 38.2% Fibonacci level, I suggest being cautious.

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The development of a downward trend section is implied by the wave pattern of the pound/dollar pair. When the MACD signal reverses to the "down" position, it is reasonable to consider sales with targets around the 1.1641 level, or 38.2% per Fibonacci. The peaks of waves e and b could be used to place a Stop Loss order. I anticipate the formation of a downward wave e with targets 500–600 points below the current levels.

Chin Zhao,
Analytical expert of InstaForex
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