We have seen a major reversal on the markets in the last few weeks, firstly after the strong US jobs data for January and then also more dollar strength followed after worse-than-expected US CPI figures.
Latest manufacturing PMI and services PMI from UK and Eurozone shows expansions so clearly the fight against the inflation is not done yet. What we see today is some recovery on EUR and GBP as we await the US to return to normal activity after the President holiday yesterday. So, I think that focus will again shift back into the US where inflation might be more important one when it comes to global decisions by CB. Tomorrow’s FOMC minutes can be a new trigger for some interesting reaction on the markets, and we may not be surprised to see the USD turning even higher if suddenly FED will turn hawkish again. Some analyst expects even a 50bp increase on their next meetings, so it’s not a surprise to see US yields moving higher with the buck.
From an Elliott wave perspective we also think that correction is not done yet and that A-B-C pattern can see more upside. Ideal resistance is normally at the former wave four which is near the 38.2% Fib; that’s usually my minimum retracement level before I may even consider the completion of a higher degree pullback. That resistance is at 105.80/106, so technically it would be the perfect spot for a next sell-off.
Also, one of the reasons why USD is getting so much attraction for the last few weeks is because speculators always firstly put their bets on the FED’s decisions before they may consider what other CB will do. A lot of speculators think that FED was too fast stepping on the breaks, so if FED will suddenly really turn out to be much more hawkish than on past meetings then USD will rally further, but maybe not that much as some expect, since we know that in a few weeks same actions will be considered by other CB. And that’s going to be the perfect timing for a new shift on the FX markets; ideally the dollar sell-off.
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