In my previous review, I questioned the conclusion that the EUR/USD and GBP/USD instruments traded higher on Tuesday due to Donald Trump's conciliatory rhetoric or some insider information suggesting the end of the war. In my opinion, the main factors were inflation in the Eurozone and the need for a brief pause. However, another factor has lowered demand for the US currency.

Last night, Fed Chair Jerome Powell delivered a speech. As background, it should be noted that recently, futures markets and analysts began to consider the possibility of the Fed tightening monetary policy by the end of the year. Previously, market participants were expecting 2-3 rounds of easing; after the FOMC meeting, they anticipated one round; and now they're suddenly considering tightening. I have already concluded that it is unlikely the Fed will raise interest rates by the end of the year. Such a decision could cripple the US labor market and further slow economic growth. Moreover, on May 15, Jerome Powell will step down as chair of the FOMC, and Kevin Warsh, who is almost certain to advocate for rate cuts, will take his place. Therefore, it is practically impossible to predict the policy the committee will adopt after May 15.

Powell's speech on Monday dispelled all doubts regarding interest rates. At least in the near future, the Fed does not intend to adjust its policy, neither upward nor downward. According to Powell, the central bank is well-positioned to wait and observe the situation. I want to remind you that at the last Fed meeting in March, Powell clearly indicated the priority of price stability. Thus, one might assume that the FOMC committee is considering tightening, given disappointing inflation forecasts.

However, last year, many also expected a significant rise in consumer prices amid Donald Trump's trade war. A strong rise in inflation was avoided, and by the end of the year, the Fed had even the opportunity to implement three rounds of monetary easing. Therefore, this time, Jerome Powell and his colleagues do not want to rush to conclusions. Theoretically, the war in the Middle East could conclude soon, or at least transition from active hostilities to a more subdued state. We can only expect a change in Powell's rhetoric and that of his colleagues if US inflation accelerates impressively for several consecutive months. At this time, I expect only corrections in the EUR/USD and GBP/USD instruments.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward segment of the trend (bottom chart) and, in the short term, has completed the formation of a downward wave set. Since the five-wave impulse structure is complete, my readers can expect an increase in quotes in the coming week or two, with targets around 1.1666 and 1.1745, corresponding to 38.2% and 50.0% on the Fibonacci scale. Further movements of the instrument will fully depend on events in the Middle East.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument has become clearer over time, as I anticipated. Now we see a clear five-wave downward structure with an elongation in the third wave on the charts. If this is indeed the case, and geopolitics does not cause a new collapse of the instrument in the near future, we can expect the formation of at least a three-wave corrective structure within which the pound could rise to the 35-36 figures. Therefore, I believe now is a good time to buy.

Key Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are often difficult to trade and can lead to frequent changes.
2. If there is no confidence in market movements, it is better not to enter the market.
3. There is no such thing as absolute certainty in market direction, and there never can be. Don't forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.