The dollar is once again under pressure due to the increased likelihood of interest rate cuts in the U.S. this month. The euro, pound, and Japanese yen strengthened their positions at the end of last week, but during the Asian session today, pressure on many trading instruments has returned. Moving forward, everything will depend on fresh fundamental data.
In the first half of the day, data is expected on the manufacturing sector business activity index for Germany, France, the Eurozone, and the UK. Experts' expectations lean towards the indicators remaining at their previous, quite low levels, which will not provide a significant impetus for strengthening the euro. However, any unexpected positive data could provoke a brief rise in the European currency, though a sustained upward movement is unlikely without fundamental changes in the region's economy. Traders will closely monitor the dynamics of new orders and export figures to assess the prospects for industrial recovery next year.
Regarding the pound, data on the PMI index for the UK manufacturing sector is also expected in the first half of the day. In addition, reports on the number of approved mortgage applications and changes in the M4 money supply will be released. The PMI index is traditionally an important indicator of the state of British industry. Expectations are currently moderately pessimistic, given the country's overall economic situation. Weak PMI figures could heighten concerns about slowing economic growth and, consequently, put pressure on the British pound. Data on approved mortgages will provide insight into the state of the UK housing market. A decline in this figure may signal a slowdown in construction activity and an overall cooling of the economy. Changes in the M4 money supply are directly related to the Bank of England's monetary policy. An increase in M4 could stimulate inflation, which, in turn, could lead the central bank to maintain a wait-and-see position.
If the data aligns with economists' expectations, it is advisable to act based on the Mean Reversion strategy. If the data comes out significantly higher or lower than economists' expectations, the Momentum strategy would be the best to use.
Momentum Strategy (Breakout):
For the EUR/USD Pair
- Long positions on a breakout above 1.1613 may lead to the euro rising to the levels of 1.1635 and 1.1655.
- Shorts on a breakout below 1.1590 may lead to the euro falling to the levels of 1.1560 and 1.1530.
For the GBP/USD Pair
- Longs on a breakout above 1.3240 may lead to the pound rising to the levels of 1.3265 and 1.3300.
- Shorts on a breakout below 1.3215 may lead to the pound falling to the levels of 1.3180 and 1.3150.
For the USD/JPY Pair
- Longs on a breakout above 155.75 may lead to the dollar rising to the levels of 156.12 and 156.55.
- Shorts on a breakout below 155.40 may lead to the dollar falling to the levels of 155.08 and 154.77.
Mean Reversion Strategy (Return):
For the EUR/USD Pair
- I will look for shorts after an unsuccessful breakout above 1.1618 on a return below this level.
- I will look for longs after an unsuccessful breakout below 1.1584 on a return to this level.
For the GBP/USD Pair
- I will look for shorts after an unsuccessful breakout above 1.3249 on a return below this level.
- I will look for longs after an unsuccessful breakout below 1.3213 on a return to this level.
For the AUD/USD Pair
- I will look for shorts after an unsuccessful breakout above 0.6561 on a return below this level.
- I will look for longs after an unsuccessful breakout below 0.6535 on a return to this level.
For the USD/CAD Pair
- I will look for shorts after an unsuccessful breakout above 1.3998 on a return below this level.
- I will look for longs after an unsuccessful breakout below 1.3961 on a return to this level.
