The euro and the British pound performed very well today using the Mean Reversion strategy. I traded the Japanese yen using the Momentum strategy.
The yen strengthened sharply against the U.S. dollar following another round of currency intervention by the Bank of Japan. Meanwhile, the euro and the pound edged lower amid broad profit-taking at the end of the month.
Ahead, the market is awaiting the release of the University of Michigan Consumer Sentiment Index, along with the inflation expectations reading. The index reflects Americans’ confidence in the economy and their personal finances, while inflation expectations indicate how consumers expect prices to rise in the future—a component the Federal Reserve monitors particularly closely. Strong consumer sentiment combined with rising inflation expectations could reinforce the case for the Fed to maintain a restrictive monetary policy and trigger U.S. dollar strength at month-end. This would increase the risk of further declines in the euro and the pound. A potential recovery in the U.S. dollar could put pressure on EUR/USD and GBP/USD, especially as both European currencies have rallied strongly in recent sessions and may now be vulnerable to profit-taking. Investors often close part of their long positions at the end of the month, and such a technical correction could add pressure on the euro and the pound even without a significant shift in the fundamental backdrop.
If the data comes in strong, I will rely on the Momentum strategy. If the market shows little or no reaction to the data, I will continue using the Mean Reversion strategy.
Momentum Strategy (Breakout) for the Second Half of the Day:
For EUR/USD
- A break above 1.1507 may push the euro toward 1.1536 and 1.1557;
- A break below 1.1482 may send the euro down toward 1.1460 and 1.1436;
For GBP/USD
- A break above 1.3451 may drive the pound toward 1.3471 and 1.3510;
- A break below 1.3421 may send the pound down toward 1.3395 and 1.3365;
For USD/JPY
- A break above 160.24 may push the U.S. dollar toward 160.48 and 160.76;
- A break below 159.80 may trigger a decline in the U.S. dollar toward 159.60 and 159.30;
Mean Reversion Strategy (Reversal) for the Second Half of the Day:
For EUR/USD
- I will look for short positions after a false breakout above 1.1513 followed by a move back below this level;
- I will look for long positions after a false breakout below 1.1485 followed by a return above this level;
For GBP/USD
- I will look for short positions after a false breakout above 1.3455 followed by a move back below this level;
- I will look for long positions after a false breakout below 1.3415 followed by a return above this level;
For AUD/USD
- I will look for short positions after a false breakout above 0.7044 followed by a move back below this level;
- I will look for long positions after a false breakout below 0.7020 followed by a return above this level;
For USD/CAD
- I will look for short positions after a false breakout above 1.4030 followed by a move back below this level;
- I will look for long positions after a false breakout below 1.4005 followed by a return above this level;
