Today, the euro and the pound were traded using the Mean Reversion strategy. I did not take any trades using the Momentum strategy.
Today, final inflation data for the eurozone and the United Kingdom were released. In the eurozone, annual inflation accelerated to 3.0% in April from 2.6% in March — the highest level since September 2023 — slightly exceeding market expectations of 2.9%.
In the United Kingdom, by contrast, inflation slowed, mainly due to government measures aimed at controlling energy prices. In other words, domestic price pressure in the UK remains under control for now; however, the energy shock related to the Strait of Hormuz continues to push the overall inflation figure higher both in Britain and across EU countries.
Next, market attention will shift to two events from the United States.
The first is the release of the minutes from the Federal Reserve's May meeting, from which investors will try to extract signals regarding how seriously committee members discussed the possibility of raising interest rates amid accelerating inflation. Let me remind you that the probability of a Fed rate hike before the end of the year already exceeds 40%, while April CPI and PPI data gave markets little reason for optimism. If the minutes reveal more hawkish rhetoric than the market currently expects, the dollar will receive additional support.
The second event is a speech by FOMC member Michael Barr, who last week clearly outlined his position: inflation is the main risk to the U.S. economy, and its unpredictable behavior concerns him far more than the labor market situation. It should also be noted that Barr is leaving his position at the end of this week, so today's speech could become one of the final public signals from the outgoing Federal Reserve leadership ahead of changes within the regulator.
If strong economic data are released, I will rely on the Momentum strategy. If the market shows no reaction to the data, I will continue using the Mean Reversion strategy.
Momentum Strategy (Breakout Trading) for the Second Half of the Day
EUR/USD
- Buying on a breakout above 1.1607 may lead to euro growth toward 1.1635 and 1.1659;
- Selling on a breakout below 1.1578 may lead to euro decline toward 1.1549 and 1.1527;
GBP/USD
- Buying on a breakout above 1.3415 may lead to pound growth toward 1.3445 and 1.3473;
- Selling on a breakout below 1.3380 may lead to pound decline toward 1.3350 and 1.3310;
USD/JPY
- Buying on a breakout above 159.13 may lead to dollar growth toward 159.39 and 159.60;
- Selling on a breakout below 158.85 may lead to dollar sell-offs toward 158.57 and 158.28;
Mean Reversion Strategy for the Second Half of the Day
EUR/USD
- I will look for selling opportunities after a failed breakout above 1.1608 followed by a return below this level;
- I will look for buying opportunities after a failed breakout below 1.1580 followed by a return above this level;
GBP/USD
- I will look for selling opportunities after a failed breakout above 1.3403 followed by a return below this level;
- I will look for buying opportunities after a failed breakout below 1.3370 followed by a return above this level;
AUD/USD
- I will look for selling opportunities after a failed breakout above 0.7125 followed by a return below this level;
- I will look for buying opportunities after a failed breakout below 0.7098 followed by a return above this level;
USD/CAD
- I will look for selling opportunities after a failed breakout above 1.3784 followed by a return below this level;
- I will look for buying opportunities after a failed breakout below 1.3762 followed by a return above this level.
