The euro, British pound, and Canadian dollar all performed well today using the Momentum strategy. I did not trade anything using the Mean Reversion strategy.
The euro continued to rise today, driven by German producer price data, which increased by 3.0% y/y and by 1.1% month-on-month. The Producer Price Index reflects changes in producer prices and serves as an early indicator of inflation, as rising business costs are eventually passed on to consumer prices. However, almost the entire monthly increase was driven by the energy sector, as the indicator would have risen by only 0.1% from June without it. This is an important factor when assessing the nature of the inflationary pressure.
For the ECB, the picture was mixed, and this determined the euro's restrained but positive reaction. The annual PPI reading appears moderate, but the monthly increase is a reminder that the prolonged deadlock surrounding the Strait of Hormuz continues to feed through into prices across the production chain of the bloc's largest economy. For EUR/USD, this provided a reason to continue rising, as persistent price pressures support expectations of tighter monetary policy, although the sustainability of the advance will depend on whether the market considers this factor temporary.
In the second half of the day, the market is awaiting a batch of U.S. economic data, including weekly initial jobless claims, the Philadelphia Fed Manufacturing Index, and the Leading Economic Index. Initial jobless claims serve as a timely indicator of labor-market conditions, as an increase signals weakening employment; the Philadelphia Fed Manufacturing Index reflects business activity in the region's manufacturing sector; and the Leading Economic Index combines several indicators and helps assess the future direction of the economy. Together, these data provide a broad picture and influence expectations for Fed policy. Only very strong data will help the dollar regain support, as the U.S. currency has been under pressure recently. For the euro and the pound, this means that weak or neutral data would allow both European currencies to hold their positions, while convincingly strong figures could put pressure on EUR/USD and GBP/USD.
If the economic data are strong, I will rely on the Momentum strategy. If there is no market reaction to the data, I will continue using the Mean Reversion strategy.
Momentum Strategy (Breakout) for the Second Half of the Day:
For EURUSD
- Buying on a breakout above 1.1710 could lead to a rise in the euro toward 1.1745 and 1.165.
- Selling on a breakout below 1.1685 could lead to a decline in the euro toward 1.1660 and 1.1638.
For GBPUSD
- Buying on a breakout above 1.3652 could lead to a rise in the pound toward 1.3675 and 1.3707.
- Selling on a breakout below 1.3624 could lead to a decline in the pound toward 1.3594 and 1.3569.
For USDJPY
- Buying on a breakout above 158.83 could lead to a rise in the dollar toward 159.13 and 159.39.
- Selling on a breakout below 158.28 could lead to a decline in the dollar toward 159.93 and 157.60.
Mean Reversion Strategy (Return) for the Second Half of the Day:
For EURUSD
- I will look for selling opportunities after a failed break above 1.1725 and a return below this level.
- I will look for buying opportunities after a failed break below 1.1675 and a return to this level.
For GBPUSD
- I will look for selling opportunities after a failed break above 1.3665 and a return below this level.
- I will look for buying opportunities after a failed break below 1.3620 and a return to this level.
For AUDUSD
- I will look for selling opportunities after a failed break above 0.7139 and a return below this level.
- I will look for buying opportunities after a failed break below 0.7115 and a return to this level.
For USDCAD
- I will look for selling opportunities after a failed break above 1.3781 and a return below this level.
- I will look for buying opportunities after a failed break below 1.3745 and a return to this level.
