Today, only the euro was traded using the Mean Reversion strategy. I did not execute any trades based on the Momentum strategy.
Volatility is expected to increase later in the day as traders focus on the release of the U.S. goods trade balance data. These figures traditionally influence the U.S. dollar and market sentiment, as they reflect the competitiveness of American products in global markets and overall import demand. Changes in the trade balance may signal either an overheating economy or a slowdown in business activity, which, in turn, could affect expectations regarding future Federal Reserve policy.
Another important indicator due for release today is the Chicago PMI. This index is one of the leading indicators of economic activity and reflects conditions in the manufacturing sector of one of the key industrial regions of the United States. A reading above 50 indicates expanding activity, while a reading below that level signals contraction.
Later in the day, Federal Open Market Committee (FOMC) member Michelle Bowman is scheduled to speak. As the market attempts to determine the future path of U.S. monetary policy, every comment from FOMC officials takes on added significance. Michelle Bowman's remarks, particularly following yesterday's inflation data, which remained relatively moderate, may provide additional insight into her assessment of current economic conditions, inflation risks, and the outlook for interest rates.
If the economic data come in strong, I will rely on the Momentum strategy. If the market shows little or no reaction to the releases, I will continue using the Mean Reversion strategy.
Momentum Strategy (Breakout Trading) for the Second Half of the Day
For EUR/USD
- A breakout above 1.1650 may lead to a rise in the euro toward 1.1670 and 1.1698;
- A breakout below 1.1625 may lead to a decline in the euro toward 1.1585 and 1.1555;
For GBP/USD
- A breakout above 1.3435 may lead to a rise in the pound toward 1.3455 and 1.3493;
- A breakout below 1.3405 may lead to a decline in the pound toward 1.3370 and 1.3340;
For USD/JPY
- A breakout above 159.40 may lead to a rise in the dollar toward 159.60 and 160.00;
- A breakout below 159.15 may trigger dollar selling toward 158.83 and 158.53;
Mean Reversion Strategy (Fade/Reversal Trading) for the Second Half of the Day
For EUR/USD
- I will look for short positions after a false breakout above 1.1659 followed by a return below that level;
- I will look for long positions after a false breakout below 1.1620 followed by a return above that level;
For GBP/USD
- I will look for short positions after a false breakout above 1.3430 followed by a return below that level;
- I will look for long positions after a false breakout below 1.3395 followed by a return above that level;
For AUD/USD
- I will look for short positions after a false breakout above 0.7175 followed by a return below that level;
- I will look for long positions after a false breakout below 0.7148 followed by a return above that level;
For USD/CAD
- I will look for short positions after a false breakout above 1.3819 followed by a return below that level;
- I will look for long positions after a false breakout below 1.3795 followed by a return above that level.
