Analysis of Macroeconomic Reports:
Several macroeconomic publications are scheduled for Wednesday. In Germany, the Eurozone, and the UK, the event calendar is empty. Still, in the U.S., relatively important reports on GDP, durable goods orders, and the core Personal Consumption Expenditures (PCE) price index will be released. We cannot say these are super important reports; however, some market reaction may follow. In our view, the key report will be the GDP data. The first estimate showed a slowdown in growth to 1.5% in the second quarter, and the second estimate may differ from the first. It is currently very difficult to expect positive trends from the American economy, so the dollar may resume its decline today.
Analysis of Fundamental Events:
Among the fundamental events on Wednesday, the only notable one is the speech by Federal Reserve representative Thomas Barkin. Yesterday, Barkin did not provide any substantial information for traders. We do not expect a hike in the Fed's key interest rate in September, as all recent macroeconomic reports argue against tightening monetary policy. The European Central Bank, on the other hand, may conduct its second monetary tightening this fall, as will the Bank of England.
The geopolitical backdrop still leaves much to be desired. The U.S. and Iran are not currently engaged in any negotiations, the Strait of Hormuz remains closed or partially closed, and the Yemeni Houthis maintain a blockade of Saudi Arabia. Tehran has outlined a list of demands to Washington necessary for reopening the Strait of Hormuz, which Donald Trump will not agree to under any circumstances. Iran has also warned Washington that if the blockade is not lifted, it will conduct a "cleansing" of the strait with its own forces. Trump has initiated an unprecedented economic operation to devastate Iran and threatens to impose sanctions on all countries that interact with it in any way. Iran has responded with threats to close other straits and routes if other countries join the pressure on Washington.
General Conclusions:
During the third trading day of the week, currency pairs may trade a bit more actively, but mainly in the second half of the day. The euro can be traded today from the area of 1.1655-1.1665, while the British pound can be traded from the area of 1.3631-1.3641. Overall, we expect both the euro and the pound to strengthen further against the U.S. dollar, and only geopolitics or a technical need for correction could impede the upward momentum.
Main Rules of the Trading System:
- The strength of the signal is assessed by the time it took to form the signal (bounce or level breakthrough). The less time required, the stronger the signal.
- If two or more trades are opened around a certain level based on false signals, all subsequent signals from that level should be ignored.
- In a flat, any pair can form a multitude of false signals or none at all. Technical levels may be disregarded.
- When trading based on MACD signals on the hourly timeframe, it is advisable to do so only when volatility is high and a trend line or channel supports the trend.
- If two levels are too close to each other (from 5 to 20 pips), they should be regarded as a support or resistance area.
- After a 15-pip move in the correct direction, a Stop Loss should be set to break even.
What the Charts Show:
Support and resistance price levels (areas) are the targets when opening buy or sell orders or sources of signals.
Red lines denote channels or trend lines that reflect the current trend and indicate in which direction trading is currently favored.
The MACD indicator (14,22,3) – histogram and signal line – is a supporting indicator that can also be used as a source of signals.
Important speeches and reports (as listed in the news calendar) can significantly influence the movement of the currency pair. Therefore, during their release, trading should be approached with utmost caution, or one should exit the market to avoid sharp price reversals against the preceding movement.
Beginners in Forex trading should remember that not every trade can be profitable. Developing a clear strategy and proper money management are essential for long-term trading success.
