The U.S. dollar continues to strengthen against risk-sensitive assets.
Yesterday's comments from Federal Reserve officials that lower interest rates might lead to higher inflation supported the U.S. dollar. Traders, concerned about the likelihood of tighter U.S. monetary policy, quickly rotated out of the euro and other risky assets and into the safer dollar.
Additional pressure on the euro came from an ECB official's remarks, suggesting that the eurozone could face a sharp decline in its inflation target. The market reacted instantly to the warning signs of potential deflationary pressures, sparking a sell-off in the euro and, consequently, boosting the U.S. dollar.
This morning, key events for the euro include the release of Germany's industrial production data and a speech by European Central Bank President Christine Lagarde. These events are likely to influence euro volatility and broader market sentiment.
Germany's industrial output is a key indicator of the overall state of the European economy. A weaker-than-expected reading may raise concerns about slowing growth in the region and could prompt the ECB to adopt more accommodative policy, which would be bearish for the euro.
Investors will closely monitor Lagarde's speech. Any signals related to future monetary policy, inflation outlooks, or economic forecasts may trigger sharp price swings in the currency markets.
As for the British pound, the market will watch the Bank of England's Financial Policy Committee (FPC) summary and minutes, as well as a speech by FPC member Huw Pill. The FPC minutes will provide detailed insight into the committee's economic outlook and the reasoning behind recent policy decisions. Huw Pill's remarks will add color and show his personal stance on the challenges currently facing the UK economy.
If the incoming data match economists' expectations, traders should use a Mean Reversion strategy. If the data are significantly better or worse than forecast, a Momentum strategy would be more appropriate.
Momentum Strategy (Breakout Trading)
EUR/USD
Buying on a breakout above 1.1646 may lead to a rally toward the 1.1681 and 1.1715 zones.
Selling on a breakout below 1.1611 may trigger a decline toward 1.1576 and 1.1530.
GBP/USD
Buying on a breakout above 1.3407 may push the pound up toward 1.3448 and 1.3488.
Selling on a breakout below 1.3365 may lead to a drop toward 1.3326 and 1.3282.
USD/JPY
Buying on a breakout above 152.45 may lead to a rise toward 152.80 and 153.20.
Selling on a breakout below 152.10 may signal a move toward 151.73 and 151.35.
Mean Reversion Strategy (Failed Breakout Reversals)
EUR/USD
I will look to sell after a failed breakout above 1.1659 and a return below the level.
I will look to buy after a failed breakout below 1.1594 and a return above the level.
GBP/USD
I will look to sell after a failed breakout above 1.3425 and a return below the level.
I will look to buy after a failed breakout below 1.3374 and a return above the level.
AUD/USD
I will look to sell after a failed breakout above 0.6586 and a return below the level.
I will look to buy after a failed breakout below 0.6552 and a return above the level.
USD/CAD
I will look to sell after a failed breakout above 1.3974 and a return below the level.
I will look to buy after a failed breakout below 1.3948 and a return above the level.
