21.05.202500:41 Forex Analysis & Reviews: The Fed Maintains a Wait-and-See Approach

The market expects active measures from the U.S. central bank, while Donald Trump keeps demanding that Jerome Powell cut interest rates. It's worth noting that Powell cannot make such decisions unilaterally. The FOMC consists of 18 members, and a majority must vote in favor of a rate cut to implement it. Therefore, asking Powell directly for policy easing is futile.

Nevertheless, Trump remains steadfast, and so does the market. Interestingly, for the past year and a half, Federal Reserve officials have consistently signaled that they do not intend to meet market expectations. Their stance has always been cautious and less dovish than the market's. However, the market refuses to change its outlook and continues to price in these expectations, creating unnecessary challenges for the U.S. dollar — ones it arguably doesn't deserve.

On Tuesday, Fed Governor Philip Jefferson stated that the central bank must ensure low inflation in the U.S., which is difficult to achieve under Trump's economic agenda. Jefferson hinted at a potential rise in prices, making it inappropriate for the Fed to ease monetary policy at this time. The FOMC's main objective right now is not just lowering inflation, but preventing any price increases from becoming entrenched. It appears the Fed sees inflation acceleration as a near certainty.

Trump's stance here is even more curious. He likely understands inflation will rise, but as long as it hasn't yet, he can keep demanding rate cuts and blaming Powell (and Biden) for the economy's troubles. Once inflation picks up, Trump can easily claim it's because Powell and Biden didn't listen to him, or deny that inflation is rising. We've heard such baseless statements from Trump many times.

Either way, Powell will be the scapegoat, but Trump has no control over him or any FOMC member. Therefore, any rate cuts will likely be limited to 1–2 moves in the second half of the year, a scenario already priced into the markets.

Wave Outlook for EUR/USD:

Based on the analysis, EUR/USD continues to build a bullish wave segment. In the near term, the wave structure will entirely depend on the trajectory of the trade war. This must be kept in mind. Wave 3 of the bullish phase is now underway, with potential targets reaching the 1.25 area. Achieving these levels will depend solely on Trump's trade policies and the U.S. position in global commerce. I favor buying opportunities above 1.1572, corresponding to the 423.6% Fibonacci level. De-escalation of the trade war could reverse the uptrend, but there are no signs of reversal for now.

Wave Outlook for GBP/USD:

The GBP/USD structure has shifted and now represents a bullish impulsive wave. Unfortunately, under Trump, the market may face many shocks and reversals that defy technical or wave-based logic. The third wave of the bullish segment continues to form, with immediate targets at 1.3541 and 1.3714. Therefore, I favor buying, as the market shows no inclination to reverse the trend.

Key Principles of My Analysis:

1. Wave structures should be simple and clear. Complex formations are hard to trade and often unpredictable.
2. If you're unsure about market conditions, it's better to stay out.
3. There's no such thing as 100% certainty in market direction — always use stop-loss protection.
4. Wave analysis can and should be combined with other methods and trading strategies.