30.11.202304:16 Forex Analysis & Reviews: Christopher Waller sees no sense in raising rates

Demand for the US dollar continues to fall at the same pace as the US economy grows. Many experts have become more active lately, predicting another crash for the dollar. Certainly, I do not believe in such a scenario and consider that the dollar is already oversold. As we have already discussed, the market refuses to increase demand for the US currency, even if there are quite reasonable reasons for it. In such conditions, all that remains is to wait for the market to finish this "fit."

On Tuesday, one of the FOMC members, Christopher Waller, stated that he sees no reason to keep the rate at its peak if inflation is consistently decreasing. Certainly, he is right, but there is one problem: inflation in the US is not consistently decreasing. Just recently, we witnessed a three-month increase in US inflation, and it only decreased to 3.2% YoY in the last month.

Waller also stated that if inflation continues to fall for several more months in a row, the Federal Reserve should consider the possibility of lowering interest rates. For the dollar, which just received support in the form of the GDP data, this is a "breath-taking" statement. If FOMC members start talking about rate cuts now, demand for the US dollar may decrease even more. If the dollar fell with neutral rhetoric from bankers, what would happen with dovish rhetoric?

It's fortunate that Waller also said that inflation in the US is still too high, which slightly delayed the hypothetical rate cut. Waller also has doubts about the prospects for inflation and economic activity, so he is not ready to confidently state that the rate will not increase further. This hawkish note likely saved the dollar from falling further. On the one hand, Waller spoke about the possibility of easing monetary policy, and on the other hand, he allowed for further tightening. In my opinion, it would be unacceptable for the dollar to fall further, but then again there are no signals of the end of the upward wave yet.

Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 mark, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling with targets below the low of wave 1 or a. But be cautious with short positions, as wave 2 or b may take a more extended form. The best decision would be to refrain from selling until signs of the completion of 2 or b appear.

The wave pattern for the GBP/USD pair suggests a decline within the downtrend segment. The most that we can count on is a correction. At this time, I can already recommend selling the instrument with targets below the 1.2068 mark because wave 2 or b will eventually end and at any time. The longer it takes, the stronger the fall. The narrowing triangle is a precursor to the end of the movement. However, I still recommend waiting for signals indicating the end of the corrective wave.