The American dollar continues to strengthen its position—this is especially evident in pairs with the euro and the Japanese yen.
President Trump's somewhat mixed stance on resolving trade relations with China continues to push away buyers of risk assets. The uncertainty surrounding the prospects of concluding a trade agreement exerts a restraining influence on investor sentiment, leading many to adopt a wait-and-see position until the situation becomes clearer. In this context, volatility in the foreign exchange market is not as high as it was previously. Traders will continue to respond sensitively to any new information regarding U.S.-China trade negotiations.
This morning, there are no reports from the Eurozone, so all attention will once again be focused on another speech by European Central Bank President Christine Lagarde. Traders will closely watch her comments on the prospects for inflation, economic growth, and future steps in monetary policy. The market expects signals indicating how concerned the central bank is with slowing inflation and whether it's prepared to ease policy further if necessary. The market's reaction to Lagarde's speech will likely depend on the tone of her statements. If she expresses concern about economic risks and suggests that the ECB is willing to take additional measures to stimulate the economy, the euro may come under pressure.
As for the pound, traders' focus will shift to the UK Consumer Price Index. High inflation readings may prompt the Bank of England to maintain a hawkish stance on interest rates, which in turn may strengthen the British pound. Conversely, low inflation readings may lead the central bank to consider monetary easing, which may weaken the pound but stimulate the economy.
If the data matches economists' expectations, it is best to proceed using a Mean Reversion strategy. If the data turns out to be much higher or lower than expected, the best approach is to use a Momentum strategy.
Momentum Strategy (Breakout Trading):
EURUSD Pair
- Long positions on a breakout above 1.1620 may lead to the euro strengthening toward 1.1645 and 1.1675
- Short positions on a breakout below 1.1600 may lead to the euro weakening toward 1.1575 and 1.1545
GBPUSD Pair
- Long positions on a breakout above 1.3390 may lead to the pound strengthening toward 1.3420 and 1.3450
- Short positions on a breakout below 1.3360 may lead to the pound weakening toward 1.3336 and 1.3295
USDJPY Pair
- Long positions on a breakout above 152.10 may lead to dollar strengthening toward 152.42 and 152.82
- Short positions on a breakout below 151.73 may lead to dollar weakening toward 151.29 and 150.83
Mean Reversion Strategy (Reversal Trading):
EURUSD Pair
- Selling opportunities may arise after an unsuccessful breakout above 1.1624, with a return below that level
- Buying opportunities may arise after an unsuccessful breakout below 1.1600 with a return above that level
GBPUSD Pair
- Selling opportunities may arise after an unsuccessful breakout above 1.3393 with a return below that level
- Buying opportunities may arise after an unsuccessful breakout below 1.3360 with a return above that level
AUDUSD Pair
- Selling opportunities may arise after an unsuccessful breakout above 0.6517 with a return below that level
- Buying opportunities may arise after an unsuccessful breakout below 0.6485 with a return above that level
USDCAD Pair
- Selling opportunities may arise after an unsuccessful breakout above 1.4020 with a return below that level
- Buying opportunities may arise after an unsuccessful breakout below 1.3989 with a return above that level
