The Euro and Pound Continued to Rise Yesterday, Along with Other Risk Assets
All of this happened following new decisions made by U.S. President Donald Trump. Yes, yesterday Federal Reserve representative Raphael Bostic expressed a hawkish stance on the future of interest rates, which led to a brief strengthening of the U.S. dollar against a number of risk assets, including the euro and the pound. However, these instruments later resumed their upward movement.
Trump’s appointment of a new FOMC member who is more loyal to the current president has increased the likelihood that the Committee will more actively cut rates in the near future — a factor that weakened the dollar.
The pound rose yesterday after the Bank of England cut interest rates to their lowest level in two years, in line with the forecasts of many economists. The reason for the pound’s growth was the central bank’s decision not to change its stance regarding the pace of further rate cuts. The BoE stated that the current economic situation does not call for additional aggressive monetary easing. The market interpreted this message as a signal that the BoE is not planning further rate cuts or an expansion of its quantitative easing program in the near term.
No statistical data is scheduled for release in the eurozone today. However, yesterday’s developments — particularly the conflicting signals from Fed officials and the political appointment to the FOMC — will continue to inject a significant degree of uncertainty into the short-term outlook for EUR/USD.
From a technical perspective, the ongoing sideways movement could indicate a consolidation phase before a new impulse. However, predicting the direction of that impulse is difficult. The support and resistance levels formed recently will play a key role. A breakout through one of these levels may signal a broader movement.
As for the UK, the only item on the agenda for the first half of the day is a speech by BoE Monetary Policy Committee member Huw Pill.
Traders are likely to continue digesting yesterday’s BoE decision and assessing its implications for the British economy, so Pill’s remarks are unlikely to have much impact on the currency market.
If the data aligns with economists’ expectations, it’s best to use a Mean Reversion strategy. If the data significantly exceeds or falls short of expectations, a Momentum strategy is more appropriate.
Momentum Strategy (Breakout):
EUR/USD
Buy on breakout above 1.1680, targets: 1.1720 and 1.1740
Sell on breakout below 1.1645, targets: 1.1615 and 1.1567
GBP/USD
Buy on breakout above 1.3440, targets: 1.3475 and 1.3510
Sell on breakout below 1.3410, targets: 1.3370 and 1.3340
USD/JPY
Buy on breakout above 147.59, targets: 147.93 and 148.23
Sell on breakout below 147.25, targets: 146.90 and 146.65
Mean Reversion Strategy (Pullbacks):
EUR/USD
Look to sell after a failed breakout above 1.1676 and a return below it
Look to buy after a failed breakout below 1.1644 and a return back above it
GBP/USD
Look to sell after a failed breakout above 1.3450 and a return below it
Look to buy after a failed breakout below 1.3427 and a return back above it
AUD/USD
Look to sell after a failed breakout above 0.6532 and a return below it
Look to buy after a failed breakout below 0.6512 and a return back above it
USD/CAD
Look to sell after a failed breakout above 1.3752 and a return below it
Look to buy after a failed breakout below 1.3733 and a return back above it
