As we have already discussed, it no longer makes sense to expect a rate cut from the Federal Reserve. The latest Consumer Price Index report showed that inflation exceeds the target mark by almost twice. It will take at least 5-6 months for inflation to slow down to at least 2.5%. And only then will the Fed be able to start discussing the first rate cut. Personally, I don't expect this to happen in the near future. This week, Fed Chair Jerome Powell said that progress in inflation has stalled, and FOMC member Michelle Bowman shared the same sentiments.

Bowman said she expects U.S. inflation to decline further, and the current monetary policy is restrictive. However, it remains to be seen if it is "sufficiently" restrictive. She lamented that American consumers are switching to cheaper goods and services, but are still spending too much money, which negatively affects the pace of slowing consumer prices. Bowman did not say what the central bank would do if inflation finally stops slowing down. However, we should read between the lines. If inflation in the United States stops declining, then there will be only one way out - a new interest rate hike.

I do understand that it is extremely difficult to believe in such a scenario, when the market has been anticipating Fed policy easing for four months. But let's remember that at the beginning of the year, the market was confident in a rate cut in March, and just a few weeks ago, in a rate cut in June. Now, the boldest economists are saying that the first round could be conducted in December or even next year. Therefore, in my opinion, the Fed could even go for one or two more steps towards tightening monetary policy.

Even if the Fed does not raise rates further, its policy will remain more restrictive for longer compared to the Eurozone, and possibly even longer than in the UK. Based on this, I still expect bearish waves to form on EUR/USD and GBP/USD instruments. For me, there is no other scenario at the moment, although, undoubtedly, the news background could change, and then adjustments would need to be made to the wave pattern. But at the moment, I see no reason to worry.

Wave analysis for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that a bearish wave set is being formed. Waves 2 or b and 2 in 3 or c are complete, so in the near future, I expect an impulsive downward wave 3 in 3 or c to form with a significant decline in the instrument. I am considering short positions with targets near the 1.0463 mark, as the news background works in the dollar's favor. The sell signal we need near 1.0880 was formed (an attempt at a breakthrough failed).

Wave analysis for GBP/USD:

The wave pattern of the GBP/USD instrument suggests a decline. I am considering selling the instrument with targets below the 1.2039 level, because I believe that wave 3 or c has started to form. A successful attempt to break 1.2472, which corresponds to 50.0% Fibonacci, indicates that the market is finally ready to build a downward wave.

Key principles of my analysis:

Wave structures should be simple and understandable. Complex structures are difficult to work with, and they often bring changes.

If you are not confident about the market's movement, it would be better not to enter it.

We cannot guarantee the direction of movement. Don't forget about Stop Loss orders.

Wave analysis can be combined with other types of analysis and trading strategies.