The U.S. dollar fell sharply against several risk assets yesterday for objective reasons.
As indicated by the data, ADP employment in the U.S. decreased by 32,000 in November, while economists had expected an increase of 19,000. The report published by Automatic Data Processing raised serious concerns about the state of the labor market in the world's largest economy. Such a significant discrepancy with forecasts indicates potential difficulties in business activity and, consequently, a decline in demand for the U.S. dollar. However, it's worth noting that the report may be distorted due to the recent government shutdown in the U.S., so there is still a chance that things aren't as bad as they seem.
In contrast, the euro, pound, and other risk assets received support from this news. It is believed that the European economy, while facing its own challenges, may prove more resilient to global economic shocks. Expectations regarding further actions by the European Central Bank also play a role, fueling interest in the euro.
Today, retail sales figures for the Eurozone for October are expected to be released in the first half of the day. This indicator, reflecting consumer activity, will be an important gauge of the region's economic health. Preliminary forecasts suggest little progress in retail sales growth, which could negatively impact the euro. If the data exceeds expectations, it could support the euro and extend the bullish trend in the EUR/USD pair.
As for the pound, data on the PMI index for the construction sector in the UK and a speech by Bank of England Monetary Policy Committee member Catherine L. Mann are also expected in the first half of the day. The PMI index, reflecting business activity in the construction sector, will provide important insights into the current state and prospects of one of the key sectors of the UK economy. A value above 50 points indicates expansion, while a value below 50 indicates contraction. Simultaneously, Catherine L. Mann's speech could shed light on the central bank's current views on the economic situation and future monetary policy. Given the high inflation, Mann's statements could significantly support the British pound.
If the data align with economists' expectations, it may be best to act based on the Mean Reversion strategy. If the data are significantly above or below expectations, it would be advisable to use the Momentum strategy.
Momentum Strategy (Breakout):
For EUR/USD
- Buy on a breakout above 1.1670, targeting 1.1700 and 1.1726.
- Sell on a breakout below 1.1649, targeting 1.1623 and 1.1590.
For GBP/USD
- Buy on breakout above 1.3350, targeting 1.3372 and 1.3400.
- Sell on a breakout below 1.3323, targeting 1.3293 and 1.3266.
For USD/JPY
- Buy on breakout above 155.50, targeting 155.80 and 156.15.
- Sell on a breakout below 155.10, targeting 154.80 and 154.47.
Mean Reversion Strategy (Return):
For EUR/USD
- Look for short positions after a failed breakout above 1.1668, with a return below this level.
- Look for longs after a failed breakout below 1.1649, with a return to this level.
For GBP/USD
- Look for shorts after a failed breakout above 1.3346, with a return below this level.
- Look for longs after a failed breakout below 1.3319, with a return to this level.
For AUD/USD
- Look for shorts after a failed breakout above 0.6620, with a return below this level.
- Look for longs after a failed breakout below 0.6602, with a return to this level.
For USD/CAD
- Look for shorts after a failed breakout above 1.3970, with a return below this level.
- Look for longs after a failed breakout below 1.3950, with a return to this level.
