05.12.202500:49 Forex Analysis & Reviews: What Did Christine Lagarde Communicate to the Markets?

Wednesday was notable not only for the ADP, ISM, and industrial production reports but also for another speech by European Central Bank President Christine Lagarde. It is worth recalling that the ECB intends to keep interest rates unchanged in the near future, as there is no need for either an increase or a decrease. Inflation in the European Union remains stable and close to the central bank's target. Lagarde has previously stated that the ECB is satisfied with the current rate of price growth in the Eurozone.

Concerns are raised primarily by the pace of economic growth, which remains relatively weak despite interest rates being lowered to a "neutral range." On average, the economy of the bloc has been growing at a rate of 0.6% to 1.2% per year in recent years. Clearly, such growth rates are not pleasing to European politicians, but they have little choice. They have to be content with these levels of GDP.

The European Union would have had a good opportunity to accelerate the growth of its economy if it were not for the trade war. Trump imposed tariffs on all imports from the EU, and the recently signed trade deal did not entirely eliminate the tariffs on EU exports to the U.S.; it only reduced them. Additionally, the EU has committed to investing hundreds of billions of dollars into American businesses and production. In other words, European money will be working for the American economy.

Returning to Lagarde's speech, she noted that the Eurozone's economic growth is supported by increased economic activity, labor market stability, and rising household spending. According to her, inflation indicators will remain stable and aligned with the central bank's target. The ECB stands ready to act swiftly and flexibly if necessary. If inflation starts to rise at any point, the central bank will be prepared to respond to this challenge by tightening its policy. Lagarde also confirmed the ECB's commitment to the inflation target of around 2%, but warned markets that small fluctuations up or down are possible. This means that the ECB is only prepared to intervene with its monetary tools in the case of the establishment of a long-term trend of rising consumer price indices. It does not intend to react to every fluctuation in inflation.

Based on all of the above, it can be concluded that the ECB will not change the parameters of monetary policy in the next six months. To establish a sustainable trend in inflation (either upward or downward), at least six months are required. Therefore, if interest rates are modified, it will not be before next summer.

Wave Analysis for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that the instrument continues to build an upward wave segment. The market has paused in recent months, but the policies of Donald Trump and the Fed remain significant factors in the decline of the American currency in the future. The targets for the current wave segment could extend up to the 25 level. Currently, it may continue to build the upward wave set. I expect that, given the current positions, construction of the third wave of this set will continue, which could be either an impulse or a corrective wave. I remain in long positions with targets in the range of 1.1670 – 1.1720.

Wave Analysis for GBP/USD:

The wave structure of GBP/USD is complex but understandable. We continue to deal with an upward impulsive wave segment, but its internal wave structure has become complex. The descending corrective structure a-b-c-d-e in wave 4 appears to have completed. If this is indeed the case, I expect the main trend segment to resume its formation with initial targets around the 38 and 40 levels. In the short term, I anticipate the construction of wave 3 or wave C, with targets around 1.3280 and 1.3360, which correspond to 76.4% and 61.8% Fibonacci levels. Both targets have already been achieved. The next targets may be around 1.3448 and 1.3552.

Fundamentals of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to trade and often lead to changes.
2. If there is no confidence in market movements, it's better not to enter.
3. There can never be 100% certainty about market directions. Remember to use protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.