The euro and pound traded with very low volatility today, so neither the Mean Reversion nor the Momentum strategy was triggered.
In the second half of the day, the market is awaiting the University of Michigan Consumer Sentiment Index and inflation expectations data, while the main event will be a speech by Federal Reserve Chair Kevin Warsh at Jackson Hole. The Michigan index reflects Americans' confidence in the economy, while inflation expectations show how consumers perceive future price growth, and this component is closely monitored by the Fed. Nevertheless, the future dynamics of the dollar will depend primarily on Warsh's remarks. The market reaction will largely depend on the tone of his speech. Hawkish rhetoric focused on fighting inflation and a willingness to keep interest rates high could strengthen the dollar, while a calm and cautious message, by contrast, could weaken the U.S. currency. For the euro and pound, this means direct sensitivity to Warsh's comments: a stronger dollar following hawkish remarks would weigh on EUR/USD and GBP/USD, while a softer tone would create room for both European currencies to rise. The pair is likely to remain subdued ahead of the speech, with the main volatility expected to come in response to his remarks.
In the event of strong economic data, I will rely on the Momentum strategy. If the data fail to trigger a market reaction, I will continue to use the Mean Reversion strategy.
Momentum Strategy (Breakout) for the Second Half of the Day:
For EUR/USD
- Buying on a breakout above 1.1657 could lead to a rise in the euro toward 1.1673 and 1.1690.
- Selling on a breakout below 1.1639 could lead to a decline in the euro toward 1.1621 and 1.1601.
For GBP/USD
- Buying on a breakout above 1.3596 could lead to a rise in the pound toward 1.3620 and 1.3647.
- Selling on a breakout below 1.3571 could lead to a decline in the pound toward 1.3546 and 1.3524.
For USD/JPY
- Buying on a breakout above 159.83 could lead to a rise in the dollar toward 160.02 and 160.24.
- Selling on a breakout below 159.60 could lead to a decline in the dollar toward 159.39 and 159.13.
Mean Reversion Strategy (Return) for the Second Half of the Day:
For EUR/USD
- I will look for selling opportunities after a failed break above 1.1661, followed by a return below this level.
- I will look for buying opportunities after a failed break below 1.1629, followed by a return to this level.
For GBP/USD
- I will look for selling opportunities after a failed break above 1.3600, followed by a return below this level.
- I will look for buying opportunities after a failed break below 1.3575, followed by a return to this level.
For AUD/USD
- I will look for selling opportunities after a failed break above 0.7210, followed by a return below this level.
- I will look for buying opportunities after a failed break below 0.7190, followed by a return to this level.
For USD/CAD
- I will look for selling opportunities after a failed break above 1.3867, followed by a return below this level.
- I will look for buying opportunities after a failed break below 1.3840, followed by a return to this level.
