Forex Analysis & Reviews: 09.06.2023 - The European Central Bank is...

09.06.2023 04:12 AM

The European Central Bank is showing a hawkish stance, but is there any reason to believe it?

While the euro is trying to build a corrective wave before it starts a downward movement, and the British pound is growing relentlessly based on market fantasies, I suggest revisiting the topic of the European Central Bank interest rates. This week, there have been several speeches by ECB members that further complement the overall picture. I would like to emphasize that I am basing my analysis entirely on wave markings and expect the euro to rise by a maximum of 100 basis points.

Nevertheless, the statements made by the ECB officials clearly reflect a hawkish sentiment. Gabriel Makhlouf said on Wednesday that once eurozone interest rates hit their peak they will stay there a while. He dispelled the rumors and said "I know some people in markets are pricing in cuts in rates at the end of the year and I'd be interested in how they are coming to those judgments". The markets are expecting the ECB to pursue the most accommodative monetary policy. The prevailing opinion now is that the Bank will raise rates at most two more times and may reach a peak value of around 4% this summer. At the same time, the likelihood of the Bank of England reaching the 5% mark is growing stronger, and even the Federal Reserve with its 5.25% rate is expected to tighten further. Perhaps that's why the euro currently appears to be an outsider?

This week, Klaas Knot stated that inflation expectations are finally becoming optimistic, and Isabelle Schnabel stated that the impact of a tight monetary policy on inflation will reach its peak next year. However, Schnabel added that no one can guarantee the timing and pace of this impact. In my opinion, the latest information from ECB officials and the Fed (there was little from the BoE) is confusing the market more than it is allowing it to draw accurate conclusions. If the assumptions about the ECB rate are correct and the tightening process ends this summer, then the construction of the third downward wave is a settled matter. But what the market is pricing into the current course of the British pound remains an open question.

The market is currently expecting a further 100 bps rate hike. I don't know where exactly this figure comes from, but the pound's recent growth seems to correspond to it. BoE Governor Andrew Bailey promised to trim inflation by the end of the year, perhaps that is what is pushing the pound higher? Honestly, the pound's recent rally looks very strange to me.

Based on the analysis conducted, I conclude that the uptrend phase has ended. Therefore, I would recommend selling at this point, since the instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic. I advise selling the instrument using these targets. A corrective wave started from the 1.0678 level, so you can consider short positions if the pair surpasses this level or after wave b has obviously been completed. Within the correction, the instrument may reach the 0.9 figure or so.

The wave pattern of the GBP/USD pair has long suggested a new downward wave. Wave b could be very deep, since all the waves have recently been equal. However, the recent growth indicates a possible completion of this wave on May 25th. In this case, this could turn into a full uptrend, and this is already a completely different picture and other conclusions with recommendations. Therefore, I currently recommend selling the pound with targets around the 23 and 22 figures, but now we need to wait for signals of the resumption of the downward wave, which are currently absent.

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*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

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Fundamental analysis

Chin Zhao,
Experto analítico de InstaForex
© 2007-2025

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