ECB prepares for 3-4 rounds of rate cuts in 2024

In the previous review, I pointed out that European Central Bank Governing Council member Robert Holzmann said that Europe could cut interest rates before the US. In my opinion, this is another reason to sell the euro and buy the dollar. However, ECB Governing Council member Yannis Stournaras said a total of four interest rate cuts is feasible in 2024, for a reduction of 100 basis points by year-end.

Now let's remember the statements we heard from Federal Reserve Chief Jerome Powell and other FOMC members. If we extract the essence from their statements, it turns out that we can expect a maximum of two rounds of 25 bps cuts. Undoubtedly, "everything will depend on inflation." If it drops to 2.5% or lower in the near future, then discussions about a more significant easing of policy may be warranted. But for now, there are no prerequisites for such a development. Therefore, the baseline scenario suggests a greater number of easing rounds in the EU than in the US. And this is another reason to reduce demand for the euro and increase it for the dollar.

The Greek central banker also said that some of his ECB colleagues are more cautious and believe that interest rate cuts should be more moderate. Therefore, we should not base our analysis on 4 easing measures, but rather on 3. It is also important to remember that each country within the EU has its own economy. And the economic conditions of all these countries are not the same. Some countries desperately need a more dovish policy. Some can easily endure several more months of a hawkish policy. Therefore, Stournaras's opinion cannot be the starting point for forecasting the euro exchange rate.

Nevertheless, there's no smoke without fire. If one of the ECB policy makers takes a firm dovish position, then other board members may also adopt it. We do not know exactly how many policymakers adhere to the dovish scenario. But the stronger the dovish sentiment, the more we hear dovish statements, the more likely the euro will continue to fall. And such a scenario fully corresponds to the current wave pattern.

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 1.0462 mark, which corresponds to 127.2% Fibonacci.





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 will start sooner or later. However, unless we can confirm that wave 2 or b ends, the instrument can still rise to the level of 1.3140, which corresponds to 100.0% Fibonacci. The quotes haven't moved far away from the peaks, so we cannot confirm the start of the wave 3 or c.

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.Pentru mai multe detalii, va invitam sa vizitati stirea originala.