FX.co ★ The Great Confrontation. Part 1

On Monday, like a thunderbolt out of a clear sky, news broke — a criminal case has been opened against Jerome Powell for embezzlement related to the renovation of Fed buildings. This story has been around for at least a year, but bureaucracy and paperwork have slowed the judicial process. Briefly, I will recall the backstory, which has two versions: the realistic and the invented.

Donald Trump, pursuing the goals of cutting government spending, reducing the budget deficit, and offsetting the negative trade balance, eventually concluded that too much money had been spent on refurbishing Federal Reserve buildings. In Trump's view, FOMC governors and central bank staff could do without marble halls, various costly installations, a VIP dining room, and other elements of luxury. It doesn't matter that the renovation was completed several years ago and, by and large, the money already spent cannot be recovered. However, Trump considered this an outrageous event that demanded criminal prosecution for embezzlement of budgetary funds.

Eight years ago, during Trump's first presidential term, Powell was chosen as Fed Chair with a single purpose — so that Trump could influence the Fed through his man. But with Powell, Trump miscalculated. The new FOMC chair refused to follow Trump's direct orders, and legally, he was not obliged to, since the Fed is not subordinate to Congress or the president. The Fed is an independent, apolitical organization whose principal aim is to manage the economy. When Trump realized his mistake, it was already too late. The Fed chair is elected for an eight-year term, and dismissal requires very substantial reasons and congressional approval. Eight years ago, Congress was not as fully Republican as it is now.

Trump began to criticize Powell, called him in to the White House, and publicly insulted him, but Powell did not even react to these attacks, fully understanding that he was acting within the law and the Fed's mandates. Eight years passed, and Powell is preparing to leave his post. When Trump became U.S. president for the second time, Powell had about 1.5 years left in his term. The old story acquired new colors. Trump criticized, threatened, and demanded rate cuts to achieve higher economic growth. But Powell stood his ground again, like a rock. After that, the story began about hypothetical embezzlement on the repair of Fed buildings, in which "only Powell" is blamed.

Wave pattern — EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build an upward trend. Donald Trump's policy and the Fed's monetary policy remain significant factors in the long-term decline of the U.S. currency. Targets of the current trend segment may extend to the 25th figure. The current upward wave set may be complete, so the instrument faces a near-term decline. The trend segment that began on November 5 may still take on a five-wave appearance, but right now it is, in any case, a corrective wave.

Wave pattern — GBP/USD:

The wave picture of GBP/USD has changed. The downward corrective structure a-b-c-d-e in C of 4 appears to be complete, as does the whole wave 4. If this is indeed the case, I expect the main trend segment to resume its development with initial targets around the 38 and 40 figures. In the short term, I expected wave 3 or c to form, with targets near 1.3280 and 1.3360, which correspond to 76.4% and 61.8% on the Fibonacci scale. These targets have been reached. Wave 3 or C has presumably completed its formation, so in the near term, a downward wave or a set of waves may develop.

Main principles of my analysis:

1. Wave structures should be simple and understandable. Complex structures are difficult to trade and often bring changes.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There is and can never be 100% certainty about the direction of movement. Do not forget protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.