As I've already mentioned this week, the biggest current intrigue lies with the U.S. Federal Reserve and the ongoing government shutdown. I don't believe that the political crisis in France is significant enough for market participants to continue reacting to it for another week or two. In my view, the shutdown is far more important because it, for instance, deprives the Fed of crucial data on inflation, unemployment, and the labor market for September. The shutdown also results in the partial suspension of government operations and delivers a blow to the economy. Many economists already forecast a slowdown in the U.S. economy in the coming years, despite a strong second quarter, and the shutdown will only exacerbate that trend.

From my perspective, the Fed is in a position where it has to take risks — lower interest rates even without fully understanding how the economy is responding to previous easing. Imagine that following the rate cut in September, the Consumer Price Index (CPI) accelerated even further. In August, it rose to 2.9%, and according to some projections, it could exceed 3% year-over-year in September. So how can the Fed justify continuing to ease policy if inflation was rising even before the cut — and continues rising afterward?

What I'm saying is that every upcoming Fed rate decision now looks far less obvious than the market seems to think — particularly the futures market, whose sentiment is reflected in the CME FedWatch Tool. According to this tool, the probability of a rate cut in October stands at 95%, and in December at 82%. Put simply, market participants are not even considering alternative outcomes beyond two more rate cuts.

And I believe that's a mistake. Or perhaps the CME FedWatch Tool reflects a flawed market sentiment. Over the past few weeks, demand for the U.S. dollar has been growing. And if we assume the French crisis has little or nothing to do with it, then that demand is likely due to fading expectations of more monetary easing. In that light, everything looks quite logical. Personally, I highly doubt that Jerome Powell would support even one more rate cut if inflation exceeds 3%. Somewhere, there's an error in the current equation — maybe the futures market believes in easing, but the FX market, judging by its behavior, is signaling the opposite.

Wave Pattern for EUR/USD:

Based on my latest EUR/USD analysis, the pair continues to form an upward segment of the trend. The wave pattern remains entirely dependent on the news backdrop, especially policy decisions from Donald Trump and the domestic and foreign agenda of the new U.S. administration.

The current wave segment may extend up to the 1.25 mark. At the moment, the market is forming corrective wave 4, which may be nearing completion. The bullish wave structure remains intact, so I continue to consider only long positions. By the end of the year, I expect the euro to rise toward 1.2245, which corresponds to the 200.0% Fibonacci.

Wave Pattern for GBP/USD:

The wave pattern for GBP/USD has become more complex. We're still dealing with an upward impulsive wave, but its internal structure is becoming harder to read.

If wave 4 develops into a complex three-wave formation, the overall wave structure may return to balance. However, this would result in a significantly more extended and complicated wave 4 versus wave 2. In my opinion, the best reference point right now is the 1.3341 level, which corresponds to the 127.2% Fibonacci level. Two failed breakout attempts suggest the market is ready to buy on dips. A third failure may again move prices away from the recent lows. My targets for the pair remain above the 1.38 level.

My Core Analytical Principles:

1. Wave structures should be simple and clearly defined. Complex formations are harder to trade and often signal potential changes.
2. If there's no confidence in what's happening in the market, it's better to stay out.
3. There is no such thing as absolute certainty in market direction. Always use protective Stop Loss orders.
4. Wave analysis can be successfully combined with other types of analysis and trading strategies.