The U.S. dollar has risen sharply against the euro, British pound, Japanese yen, and other risk assets, despite the fact that the Federal Reserve is set to lower interest rates today.
Data showed that the consumer confidence index in the U.S. exceeded economists' forecasts, as did the Richmond manufacturing index, prompting a sharp rise in the dollar in the absence of significant fundamental data. The impact of the shutdown on economic data remains significant. The lack of regular statistics makes it difficult to assess the current state of the economy and increases volatility in the markets. Because of this, traders are forced to rely on disparate indicators, which amplifies reactions to surprises, like the recently released consumer confidence data.
Additionally, the British pound is under pressure amid the UK Prime Minister's efforts to strengthen ties with the EU. Reeves made these plans known during a recent speech. These statements elicited a mixed reaction in political and business circles, dividing society between supporters and opponents of closer relations with the European Union. Concerns are rising that any significant rapprochement with the EU may require the UK to make concessions on sovereignty and regulation, potentially limiting the country's ability to define its own economic policy.
Today, there are no major reports scheduled for the Eurozone, so a strong recovery for the euro seems unlikely. Traders will focus on the FOMC meeting, which we will discuss in more detail in the forecast for the second half of the day.
Regarding the UK, there are expected data releases for the number of approved mortgage applications, net borrowing for individuals, and the M4 money supply volume in the first half of the day. These indicators can provide some insight into the state of consumer credit and monetary policy in the country, but their impact on the markets will likely be limited. The mortgage data may reflect dynamics in the housing market, which has been under pressure from high interest rates and broader economic uncertainty. The volume of net borrowing for individuals will indicate consumers' willingness to take on debt. Finally, the M4 money supply could provide insights into the money in circulation and, therefore, inflationary pressure. Only very strong data may limit the downside potential for GBP/USD.
If the data aligns with economists' expectations, it would be best to operate based on the Mean Reversion strategy. If the data is significantly above or below economists' expectations, the Momentum strategy should be utilized.
Momentum Strategy (Breakout):
For the EUR/USD Pair
- Buy on a breakout of 1.1645, which may lead to a rise in the euro towards 1.1668 and 1.1696.
- Sell on a breakout of 1.1620, which may lead to a drop in the euro towards 1.1600 and 1.1575.
For the GBP/USD Pair
- Buy on a breakout of 1.3250, which may lead to a rise in the pound towards 1.3280 and 1.3310.
- Sell on a breakout of 1.3230, which may lead to a drop in the pound towards 1.3180 and 1.3145.
For the USD/JPY Pair
- Buy on a breakout of 152.50, which may lead to a rise in the dollar towards 152.75 and 153.10.
- Sell on a breakout of 152.20, which may lead to a drop in the dollar towards 151.75 and 151.40.
Mean Reversion Strategy (Retracement):
For the EUR/USD Pair
- Look for sells after a failed breakout above 1.1651 and a retracement below this level.
- Look for buys after a failed breakout below 1.1618 and a retracement back to this level.
For the GBP/USD Pair
- Look for sells after a failed breakout above 1.3265 and a retracement below this level.
- Look for buys after a failed breakout below 1.3219 and a retracement back to this level.
For the AUD/USD Pair
- Look for sells after a failed breakout above 0.6617 and a retracement below this level.
- Look for buys after a failed breakout below 0.6584 and a retracement back to this level.
For the USD/CAD Pair
- Look for sells after a failed breakout above 1.3951 and a retracement below this level.
- Look for buys after a failed breakout below 1.3915 and a retracement back to this level.
