The American dollar continues to trade within the channel with many risk assets, including the euro and the British pound.
Yesterday, the dollar reacted with a decline to a couple of weak reports from the U.S. New home sales in July fell to 607,000 on an annual basis compared to 678,000 in June, while the inventory of unsold new homes rose to 488,000, which at the current sales pace corresponds to 9.6 months of supply compared to 8.5 months previously and a norm of about six. Housing sales reflect demand in an interest-sensitive sector, and the rise in unsold homes indicates a cooling housing market, weakening the case for a hawkish Federal Reserve policy.
The Conference Board consumer confidence index, which also fell for the second consecutive month to 89.4, did not provide any support for the dollar. The main point was in the structure, as the current situation estimate surged. At the same time, expectations collapsed to 68.2, remaining well below the 80 mark, which is traditionally considered a signal of an impending recession. Americans note that it has become easier to find a job, but they are increasingly gloomy about the prospects for the next half of the year.
For the euro and pound, a weaker dollar has been supportive, and both European currencies have strengthened. Both EUR/USD and GBP/USD rose amid the retreat of the US dollar, as a weak housing market and deteriorating consumer expectations work against further Fed rate hikes. However, all the intrigue now shifts to Friday's speech by Waller at Jackson Hole, from which the market awaits signals about the central bank's further course.
Today, in the first half of the day, no reports from the Eurozone are expected, which deprives the single currency of its drivers. In the absence of domestic data, the euro begins to move in line with external factors, as the dollar's dynamics and overall risk appetite determine the pair's direction when there are no internal causes. Under such conditions, the EUR/USD pair is most likely to remain within the sideways channel, retaining the chance of a continuation of the bullish market.
Regarding the pound, the direction will be set in the first half of the day by the Confederation of British Industry's retail sales data. This indicator is based on surveys of retailers and reflects sales dynamics in the trade sector. Since it is released before the official data, the market perceives it as an operational signal about the state of consumer demand. The British public's readiness to spend indirectly affects expectations regarding the Bank of England's interest rate. That is why poor figures will quickly return pressure on the GBP/USD pair.
If the data matches economists' expectations, it is better 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 EUR/USD Pair
Buy on a breakout of 1.1682 may lead to a rise in the euro to around 1.1709 and 1.1727;
Sell on a breakout of 1.1653 may lead to a drop in the euro to around 1.1627 and 1.1601;
For the GBP/USD Pair
Buy on a breakout of 1.3647 may lead to a rise in the pound to around 1.3672 and 1.3707;
Sell on a breakout of 1.3620 may lead to a drop in the pound to around 1.3594 and 1.3569;
For the USD/JPY Pair
Buy on a breakout of 159.13 may lead to a rise in the dollar to around 159.39 and 159.60;
Sell on a breakout of 158.83 may lead to a sell-off of the dollar to around 158.57 and 158.27;
Mean Reversion Strategy (Retracement):
For the EUR/USD Pair
I will look for short positions after an unsuccessful breakout above 1.1678 on a return below this level;
I will look for long positions after an unsuccessful breakout below 1.1653 on a return to this level;
For the GBP/USD Pair
I will look for shorts after an unsuccessful breakout above 1.3650 on a return below this level;
I will look for longs after an unsuccessful breakout below 1.3620 on a return to this level;
For the AUD/USD Pair
I will look for shorts after an unsuccessful breakout above 0.7192 on a return below this level;
I will look for longs after an unsuccessful breakout below 0.7174 on a return to this level;
For the USD/CAD Pair
I will look for shorts after an unsuccessful breakout above 1.3868 on a return below this level;
I will look for longs after an unsuccessful breakout below 1.3843 on a return to this level;
