07.04.202216:49 Forex Analysis & Reviews: Analysis of GBP/USD on April 7. James Bullard: the rate should be at 3.5%

For the pound/dollar instrument, the wave markup continues to look very convincing and does not require any additions. The assumed wave d-E is completed, and there should be five waves in total inside the wave E, respectively, as in the case of the euro/dollar instrument, the downward trend section can continue its construction for some time. Wave d-E can still take a longer three-wave form. This is supported by the fact that wave b-E has taken a five-wave extended form. Also in favor of this is the unsuccessful attempt to break the low wave c-E. Thus, the instrument could not break through the 76.4% Fibonacci level and the construction of a new upward wave may begin. This wave can be corrective, internal in the composition of e-E, or it can be the beginning of c-d-E. In the first case, the decline in the British dollar quotes should resume in the near future, in the second case, the instrument may return to the 1.3274 mark, which corresponds to 61.8% Fibonacci. But one way or another, I expect the construction of a wave e-E, that is, a further lowering of the instrument.

The Fed's rhetoric continues to shock the markets.

The exchange rate of the pound/dollar instrument on April 7 again practically did not move from its place. The second day in a row. The news background, if we talk about the economy, was practically absent both yesterday and today. Last night, the Fed minutes were released, which resulted in a new attempt to break through the 1.3044 mark, which corresponds to 76.4% Fibonacci, but again unsuccessful. The minutes contained information that indicated the Committee's readiness not only to raise rates at an increased pace but also to begin the process of reducing the Fed's balance sheet, which is $ 8.9 trillion. This is the most "hawkish" information that the market could get. Thus, the demand for the US currency remains high, although it is still impossible to pass through the 1.3044 mark.

However, today the president of the St. Louis Fed, James Bullard, even surpassed yesterday's Fed minutes. He said that the US central bank is already very much late in its fight against inflation. The most modest calculations, in his opinion, suggest that the interest rate should be at least 3.5% for the fight against inflation to be effective. "Now it is very important that the Fed approves the presented rate hike program at the next meetings," Bullard said. This information gives the market new food for thought. It gives an upper benchmark to which the Fed can raise the rate. It gives an approximate timeframe during which the rate will increase. It gives an understanding of when inflation will begin to decline approximately. If the neutral rate level is 2.5%, then the impact on inflation will begin no earlier than in 2023. And the rate can be raised to 3.5% no earlier than the second half of 2023. This means that high inflation will persist in the US for at least another year. And if energy prices continue to rise, as in recent months, even more, drastic measures may be needed to lower the consumer price index.

General conclusions

The wave pattern of the pound/dollar instrument still assumes the construction of wave E. I continue to advise selling the instrument with targets located near the 1.2676 mark, which corresponds to 100.0% Fibonacci, according to the MACD signals "down", since the wave E does not look completed yet. Wave d can take a three-wave form and lengthen - wave b turned out exactly like this, but in any case, we should consider the signals "down", and while wave d continues to build, the MACD indicator is rising.

At the higher scale, wave D looks complete, but the entire downward section of the trend does not. Therefore, in the coming weeks, I expect the instrument to continue to decline with targets well below the low of wave C. Wave E should take a five-wave form, so I expect to see the British quotes around the 27th figure.