The last two weeks have brought many significant events to the currency market. Initially, no one understood what was driving the demand for US currency. It should be noted that the recent strengthening of the dollar began two weeks ago, immediately after the Federal Reserve meeting. Undoubtedly, the stance of the American central bank can be considered more "hawkish" than previously expected, but there is a quite objective basis for that which traders could not overlook earlier. This basis is American inflation. Over the course of just three months, the consumer price index accelerated from 2.4% to 4.2%, inevitably prompting a reaction from the Fed and something traders were well aware of. But what kind of reaction? In the European Union, inflation stands at 3.2%, and the European Central Bank has already begun raising rates. In the US, inflation is one percentage point higher, and there is talk only of possible tightening in the fall or even winter. Which of the two central banks appears more hawkish?

Following the Fed meeting, the dollar rose for almost a full week and a half. I understand that the FOMC took a more hawkish position, but what's all the fuss about? Over a single rate hike, which is uncertain when it will happen? Currently, the probability of two or more rounds of tightening by the end of the year is only 40%. Thus, market participants themselves do not seem to fully believe that under Kevin Warsh, the Fed will raise rates multiple times.

When the Fed does tighten, Warsh's mission may be considered accomplished. The Fed, at a critical moment, protected US citizens and began tightening policy to reduce inflation. But does anyone believe that the Fed will, if needed, raise rates two or three times? Last year, the central bank lowered rates three times, only to raise them three times now?

Donald Trump does not want a war with Iran, as Congressional elections are "around the corner." Therefore, the American president will make any concessions to conclude a nuclear agreement with Iran. I even suspect that Trump might allow Iran to possess some nuclear missiles "since the country has the right to defend itself against enemies." Many experts are currently reporting that the deal struck between Tehran and Washington benefits only Iran, as Iran is not conceding anything in reality. Therefore, Trump will continue to give way.

Based on all of the above, it follows that all discussions about the dollar's attractiveness due to investment in the AI sector, the growth of the US stock market, or the Fed's tightening position reflect, in my opinion, only the fact that some market participants are willing to quickly change their positions.

Wave Analysis for EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument remains within an upward segment of the trend, while in the shorter term it is within a downward segment. In my view, now is not a bad time to establish long positions, but the instrument could drop much lower within wave C. If this assumption is correct, it may be better to wait a bit, at least for wave 5 in C. However, wave analysis often brings surprises, so I would begin to adjust for long positions already.

Wave Analysis for GBP/USD:

The wave picture for the GBP/USD instrument has taken on a clearer shape. Currently, the instrument has formed three downward waves; the wave analysis for EUR/USD has also changed, indicating it has formed three waves. Therefore, the pound might resume its decrease within wave 5 in C after a small correction in wave 4. Regardless, the downward wave structure may conclude soon, and the current news backdrop does not provide unconditional support for the US currency. The unsuccessful attempt to break the 1.3157 mark, corresponding to 100.0% on the Fibonacci scale, indicates the readiness of the instrument to rise. The current issue for the pound relates once more to geopolitics.

Key Principles of My Analysis:

1. Wave structures should be simple and clear. Complex structures are difficult to play out; they often come with changes.
2. If there is uncertainty in the market, it is better not to enter.
3. There is no such thing as 100% certainty in the direction of movement, and there never will be. Do not forget about protective stop-loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.