18.08.202613:30 Forex Analysis & Reviews: Level and Target Adjustments for the U.S. Session – August 18

The British pound and the Canadian dollar performed well today using the Mean Reversion strategy. I did not trade anything using the Momentum strategy.

The euro showed almost no reaction to the improvement in the German ZEW indicator, although the data was formally positive. The Economic Sentiment Index increased by another 7.9 points in August to 34.2, while the assessment of the current situation jumped by 16.5 points. In the eurozone, expectations rose by 8.0 points to 31.4, while the assessment of the current situation improved by 16.2 points, although it remained negative at -21.5. It is noteworthy that the current situation in the eurozone is assessed considerably less negatively than in Germany itself, meaning that the bloc's largest economy remains its weak link. The improvement in sentiment is attributed to strong quarterly results, high exports, and government infrastructure programs, but as long as the current assessment remains deeply negative, the EUR/USD pair lacks sufficient grounds for confident growth.

The British pound, in contrast, reacted with a decline to weak UK labor market data.

In the second half of the day, the market will focus on a fairly busy set of US economic data, including building permits, housing starts, changes in industrial production, and the capacity utilization rate. Building permits and housing starts are leading indicators of activity in the real estate sector, industrial production reflects output at manufacturing facilities, and capacity utilization shows how intensively production resources are being used. Together, these indicators provide a broad picture of the state of the economy and directly influence expectations regarding the Fed's interest rate policy.

If the data is strong, pressure on dollar pairs is likely to return, similar to yesterday's scenario. It should be recalled that the strong Empire State Manufacturing Index supported the US currency the previous day, and another positive scenario could put pressure on EUR/USD and GBP/USD. A weak result, on the other hand, would weaken the dollar and give both European currencies some relief. Therefore, the outcome will depend on how significantly the figures exceed or fall short of forecasts.

In the case of strong data, I will rely on the Momentum strategy. If the market does not react to the releases, I will continue using the Mean Reversion strategy.

Momentum Strategy (breakout strategy) for the second half of the day:

EUR/USD

• Buying on a breakout above 1.1590 could lead to euro growth toward 1.1613 and 1.1645.
• Selling on a breakout below 1.1566 could lead to a decline in the euro toward 1.1541 and 1.1514.

GBP/USD

• Buying on a breakout above 1.3540 could lead to pound growth toward 1.3569 and 1.3600.
• Selling on a breakout below 1.3515 could lead to a decline in the pound toward 1.3501 and 1.3475.

USD/JPY

• Buying on a breakout above 159.83 could lead to dollar growth toward 160.02 and 160.24.
• Selling on a breakout below 159.60 could lead to dollar selling toward 159.39 and 159.13.

Mean Reversion Strategy (reversal strategy) for the second half of the day:

EUR/USD

• I will look for selling opportunities after a failed breakout above 1.1591 and a return below this level.
• I will look for buying opportunities after a failed breakout below 1.1564 and a return to this level.

GBP/USD

• I will look for selling opportunities after a failed breakout above 1.3543 and a return below this level.
• I will look for buying opportunities after a failed breakout below 1.3515 and a return to this level.

AUD/USD

• I will look for selling opportunities after a failed breakout above 0.7121 and a return below this level.
• I will look for buying opportunities after a failed breakout below 0.7099 and a return to this level.

USD/CAD

• I will look for selling opportunities after a failed breakout above 1.3881 and a return below this level.
• I will look for buying opportunities after a failed breakout below 1.3860 and a return to this level.