28.11.202304:01 Forex Analysis & Reviews: Dollar fell too low, and rate hikes won't help the euro

Demand for the euro continues to increase. Not only is it rising every day, but even on days when there is no important news to support the euro. Therefore, the demand for the euro is growing somewhat unpredictably. And as it turns out, others are thinking the same. Some analysts support it and reinforce it with quite interesting arguments, which we will now consider.

Commerzbank believes that the US dollar has fallen too sharply in recent weeks, which does not correspond to the current news background. The bank says that the dollar is undoubtedly upset about a series of weak reports on the US economy, but the European economy is not often a source of joy either, and the Federal Reserve's rate has risen 1% higher than the European Central Bank's rate. Commerzbank believes that a rate hike is as likely as a rate cut. Those members of the ECB's Governing Council who belong to the "dove camp" but currently support an increase may change their minds. And then, the absolute majority of managers will lean towards a rate cut.

The main question is whether the ECB is ready for another tightening if inflation starts to rise. Commerzbank believes that the ECB is ready for this but is not eager to implement this scenario. The euro is currently supported by the market's belief that the central bank will intervene if necessary. If it realizes that the majority of ECB members are inclined to lower the rate (2024 is coming very soon), this could halt the euro's upward movement.

As we can see, even well-known analysts cannot express their thoughts clearly and precisely. It is difficult to do so at the moment because the ECB itself does not understand how the inflation situation will develop and, therefore, cannot provide any forecasts. Therefore, I believe that it is best to rely on the wave picture and important levels, each of which can stop the rise of the euro or the pound.

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 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. At the same time, two unsuccessful attempts to breach 1.0955 may be the signal of the completion of 2 or b.

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 can end at any time. Initially, just a good amount of short positions should be enough because there is always a risk of complicating the existing wave. The narrowing triangle is a precursor to the end of the movement. An unsuccessful attempt to break 1.2626 can be a specific signal.