The U.S. dollar is under pressure, while risk assets, including the euro and the pound, have made a strong recovery.
Yesterday's statements from U.S. Federal Reserve representatives that interest rates should remain unchanged failed to provide sufficient support for the American dollar, and today's speech from Trump put even more pressure on it. The lack of any signals regarding an imminent rate cut only heightened traders' concerns about slowing U.S. economic growth, which in turn puts pressure on the American currency. The Fed's rhetoric has become sufficiently dovish, and each new statement from central bank representatives only confirms this trend. Investors are also concerned that Trump's new trade policy could lead the American economy into a deeper deadlock, prompting them to hesitate in opening long positions in the dollar.
Today's first half is promising to be rich in economic events that may significantly impact financial markets. Primarily, investors will focus on the release of German GDP change data. This indicator is a key indicator of the Eurozone's largest economy and is closely monitored by all market participants. Analysts expect to see dynamics that will allow an assessment of the current direction of the German economy. Weak data would be a serious cause for concern.
Simultaneously with Germany's GDP data, important consumer price data for the Eurozone will be released. The publication of the consumer price index and, importantly, the core consumer price index will provide a clearer picture of inflationary processes throughout the currency bloc. The core index, which excludes volatile components like energy and food prices, is considered a more reliable indicator of sustained inflationary pressure. These figures are crucial to the European Central Bank when making monetary policy decisions, including interest rate decisions. However, considering that inflation is currently around the target level, it is unlikely that the release of this data will significantly impact the euro.
As for the pound, there is no important data from the UK today. Yesterday, the British pound found its footing for growth against the dollar after Trump's speech, and it is quite likely this trend will continue today. The lack of new economic data from the UK means the pound's current movement is largely determined by external factors, such as dollar dynamics and overall sentiment in global markets.
If the data aligns with economists' expectations, it is better to act using the Mean Reversion strategy. If the figures differ significantly from economists' expectations, the Momentum strategy will be the best approach.
Momentum Strategy (Breakout):
For the EUR/USD Pair:
- Buy on a breakout of the level 1.1810, which may lead to the euro rising to the range of 1.1834 and 1.1857;
- Sell on a breakout of the level 1.1788, which may lead to a decline in the euro to the range of 1.1767 and 1.1745;
For the GBP/USD Pair:
- Buy on a breakout of the level 1.3530, which may lead to the pound rising to the range of 1.3555 and 1.3579;
- Sell on a breakout of the level 1.3492, which may lead to a decline in the pound to the range of 1.3462 and 1.3432;
For the USD/JPY Pair:
- Buy on a breakout of the level 155.67, which may lead to the dollar rising to the range of 156.07 and 156.43;
- Sell on a breakout of the level 155.32, which may lead to dollar sell-offs in the range of 154.95 and 154.63;
Mean Reversion Strategy (Reversal):
For the EUR/USD Pair:
- Look for short positions after a failed breakout beyond 1.1807 on a return below this level;
- Look for long positions after a failed breakout beyond 1.1776 on a return to this level;
For the GBP/USD Pair:
- Look for shorts after a failed breakout beyond 1.3530 on a return below this level;
- Look for longs after a failed breakout beyond 1.3495 on a return to this level;
For the AUD/USD Pair:
- Look for shorts after a failed breakout beyond 0.7130 on a return below this level;
- Look for longs after a failed breakout beyond 0.7094 on a return to this level;
For the USD/CAD Pair:
- Look for shorts after a failed breakout beyond 1.3690 on a return below this level;
- Look for longs after a failed breakout beyond 1.3674 on a return to this level;
