In low trading volume, none of the instruments worked out through the Mean Reversion strategy. I tried trading the pound (GBP) using Momentum, which worked out reasonably well.
Now all attention is on the US CPI and Core CPI data. Growth in these indicators will strengthen the dollar and push risk assets lower. In the case of a sharp drop in inflation, the dollar will weaken sharply again. Market participants are watching every slight data change, as it may provide clues about the Fed's next interest rate steps. The Fed is expected to cut rates if inflation slows sharply, which would weaken the dollar even further. Despite some deceleration in recent months, inflation still significantly exceeds the Fed's 2% target. This creates a dilemma for the central bank, which must balance fighting inflation with the risk of overtightening and causing a recession.
The impact of the inflation data on the FX market will depend on the "surprise" factor. If inflation is much higher than expected, an abrupt market reaction (dollar strength) is likely. Conversely, if inflation falls short of expectations, the dollar may weaken and the euro strengthen.
In case of strong data and a clear market reaction, I'll use the Momentum breakout strategy. If there's no pronounced reaction, I'll keep using the Mean Reversion approach.
Momentum (Breakout) Strategy for the Second Half of the Day:
EUR/USD
- Buys on a breakout above 1.1696 could take euro toward 1.1728 and 1.1760
- Sells on a breakout below 1.1668 could send the pair toward 1.1634 and 1.1611
GBP/USD
- Buys above 1.3519 could lead to gains toward 1.3553 and 1.3587
- Sells below 1.3500 could push the pair toward 1.3484 and 1.3451
USD/JPY
- Buys above 148.03 could lead to gains toward 148.44 and 148.76
- Sells below 147.72 could result in declines toward 147.39 and 146.96
Mean Reversion (Pullback) Strategy for the Second Half of the Day:
EUR/USD
- Look to sell after a failed breakout above 1.1705 and a quick return below
- Look to buy after a failed breakout below 1.1678 and a return above
GBP/USD
- Look to sell after a failed breakout above 1.3572 and a quick pullback under this level
- Look to buy after a failed breakout below 1.3493 and a return above
AUD/USD
- Look to sell after a failed breakout above 0.6620 and a pullback under
- Look to buy after a failed breakout below 0.6600 and a return above
USD/CAD
- Look to sell after a failed breakout above 1.3891 and a return below
- Look to buy after a failed breakout below 1.3865 and a return above
