The dollar has reclaimed some positions, but buyers of risk assets are not willing to give up.
Good reports on the American economy yesterday led to a rise in the dollar, with the main driver being the Philadelphia Federal Reserve's manufacturing index, which rose to 47.4 from 41.4. This indicator reflects business activity in the region's industry, where a value above zero indicates sector expansion; thus, such a noticeable increase confirmed the strength of the economy. The employment component was particularly impressive, rising 18 points to 27.9, the highest since April 2022, indicating that businesses are ready to hire actively.
The picture was complemented by labor market data, which also came out strong. The number of initial jobless claims fell to 206,000, down 6,000 from the previous week. The number of benefit recipients also decreased. Such a resilient labor market reinforced the case for the Fed's hawkish policy and added support to the dollar. For the euro and the pound, the strengthening of the dollar resulted in declines, with both European currencies losing ground.
Today, in the first half of the day, attention to the single currency will focus on the August PMI index block for the Eurozone — manufacturing, services, and the composite index — as well as a report on consumer confidence. PMI indices are based on company surveys and reflect the state of business activity, where the 50-point mark separates growth from contraction. In contrast, the composite index combines industry and services, providing a more complete picture. The consumer confidence index, in turn, reflects the population's willingness to spend, complementing assessments of the state of the economy.
Given that business activity in the Eurozone had already accelerated in July, and the composite index remained in growth territory, the market will be watching whether this momentum can be maintained in August. Strong figures could provoke a new wave of euro purchases, as they would strengthen confidence in the sustainability of the bloc's economy and support expectations of a hawkish European Central Bank policy. A weak result, on the other hand, would dampen sentiment, so the EUR/USD pair will primarily react to deviations from the forecast.
Similar PMI data is expected for the UK. Additionally, retail sales data will be released. Retail trade shows how confidently consumers are spending, and business activity indices are leading indicators as they are the first to capture changes in business sentiment. Given that the services sector previously returned to growth, the market will watch whether this revival can be sustained in August.
If the data matches economists' expectations, it is advisable to act based on the Mean Reversion strategy. If the data is significantly higher or lower than economists' expectations, it is best to use the Momentum strategy.
Momentum Strategy (Breakout):
For the EURUSD pair
Buy on a breakout above 1.1709 may lead to a rise in the euro to the 1.1727 and 1.1745 areas;
Sell on a breakout below 1.1683 may lead to a fall in the euro to the 1.1659 and 1.1638 areas;
For the GBPUSD pair
Buy on a breakout above 1.3656 may lead to a rise in the pound to the 1.3675 and 1.3707 areas;
Sell on a breakout below 1.3624 may lead to a fall in the pound to the 1.3594 and 1.3569 areas;
For the USDJPY pair
Buy on a breakout above 158.13 may lead to a rise in the dollar to the 159.39 and 159.60 areas;
Sell on a breakout below 158.83 may lead to a decline in the dollar to the 158.57 and 158.28 areas;
Mean Reversion Strategy (Return):
For the EURUSD pair
I will look for short positions after a failed breakout above 1.1705 on a return below this level;
I will look for long positions after a failed breakout below 1.1682 on a return to this level;
For the GBPUSD pair
I will look for shorts after a failed breakout above 1.3657 on a return below this level;
I will look for longs after a failed breakout below 1.3633 on a return to this level;
For the AUDUSD pair
I will look for shorts after a failed breakout above 0.7159 on a return below this level;
I will look for longs after a failed breakout below 0.7130 on a return to this level;
For the USDCAD pair
I will look for shorts after a failed breakout above 1.3781 on a return below this level;
I will look for longs after a failed breakout below 1.3747 on a return to this level;
