10.09.202613:23 Forex Analysis & Reviews: EUR/USD and GBP/USD Strategies for Beginner Traders — September 10

The dollar showed little movement during the first half of the day and remained within a narrow range. There were no significant releases from the euro area, while market participants reduced their positions ahead of the ECB meeting and were reluctant to open new ones. This low level of activity will end today, with two important events scheduled for the second half of the day.

The morning brought the final estimate of German inflation for August, which confirmed the preliminary figures. Annual price growth accelerated to 2.9%. The acceleration itself was modest; the more important issue is its cause. Destatis directly identified higher energy prices as the main factor, with their increase linked to the war in Iran. This is most evident in motor fuel prices. Overall, the energy component increased by more than 10% year on year, recording its strongest growth in more than three years.

Therefore, German inflation is currently driven largely by energy prices, as the authorities have limited tools to influence gasoline prices. For the central bank, which is raising its interest rate to 2.5% at today's meeting in Berlin, this is further confirmation that the energy shock has not disappeared. With Brent above $100, September's figures could be even higher, which supports a tighter policy stance and, consequently, the euro.

Now let us turn to what I also consider to be the main topic of the day. In addition to the ECB meeting, the U.S. Producer Price Index will be released in the afternoon, and the forecasts are concerning. Analysts expect monthly growth of 0.4%, compared with no change in July, while annual growth is expected to reach 5.3%, up from 4.2% a month earlier. This is not a minor adjustment but an increase of more than one percentage point in a single month.

Let me explain why this is important for a beginner. The Producer Price Index shows how much the prices of goods increase at the production stage, before they reach stores. Companies do not fully absorb these higher costs and instead pass them on to consumers with a delay of several months. Therefore, producer-price inflation serves as a leading indicator of consumer inflation. If tomorrow's consumer-price report confirms this trend, expectations of a Fed pause may have to be postponed for a considerable period.

Existing home sales and weekly initial unemployment claims will also be released alongside the PPI, but given the inflation forecast, they will be of secondary importance.

The outlook for the euro and pound is mixed. The dollar has recently appeared weak due to interventions, and if the inflation figures exceed expectations, demand for the U.S. currency will return, putting both European currency pairs under pressure. A weaker-than-expected result, by contrast, would further weaken the dollar and allow the euro and pound to rise. There is one important detail to consider. The forecast is already priced in, and the market expects strong figures. Therefore, the reaction will be determined not by the fact that inflation is rising itself, but by the deviation from the forecast. Even an annual reading of 5.0% against expectations of 5.3% would technically still represent a significant increase, but it would be disappointing for the dollar.

Momentum

For the euro, I am watching 1.1640 on the upside. A breakout would open the way toward 1.1673 and then 1.1690. This scenario is valid if the ECB press conference takes a hawkish tone and the U.S. PPI comes in below expectations. On the other hand, the key level is 1.1620, a break below which would lead to 1.1590 and 1.1568. This scenario becomes the primary one if producer-price inflation exceeds expectations, as the dollar would then receive the positive catalyst it has lacked throughout the week.

I do not recommend entering trades based on the first candle in either case. The day is packed with events, and the initial market reaction may be followed by a move in the opposite direction within ten minutes. I would wait for consolidation beyond the level.

For the pound, the upside level is 1.3555, with targets at 1.3596 and 1.3620. On the downside, the key level is 1.3530, with targets at 1.3505 and 1.3480. The British currency has no significant domestic catalyst of its own, so its direction will be determined by the dollar, making U.S. economic data more important than the European meeting in this case.

Mean Reversion

For the euro, the upper boundary is 1.1661. I will look for selling opportunities after an attempt to consolidate above this level fails and the price returns below it. Note that this level is significantly above the breakout point, meaning that the pair can reach it only after a strong move. Such a move today would be possible only if the central bank uses hawkish language. Therefore, selling at this level would effectively mean expecting the initial market reaction to the press conference to be excessive. The lower level is 1.1612, which is traded using the opposite approach: buying after an unsuccessful break below the level. This scenario is likely if the PPI comes in strong, the dollar rises sharply, and the market subsequently begins to take profits ahead of tomorrow's consumer-price report.

For the pound, the upper level is 1.3555, and there is an important detail that should be considered separately. It coincides with the breakout level, creating a zone in which two scenarios produce opposite signals. The same price area can generate different signals depending on subsequent price behavior. If the pound moves above the level and holds there firmly, the breakout scenario is valid, and I would target 1.3596. If the move above the level is brief and the price falls back below it, the mean-reversion scenario becomes valid, and I would look for selling opportunities. The difference depends entirely on the price behavior after the level is reached, so it is more reasonable to avoid the initial reaction in this zone and wait for confirmation.

The lower boundary for the pound is 1.3530, and the same issue of its overlap with the breakout point applies here. The logic is reversed. A brief break below the level followed by a quick return to it would provide an opportunity to buy, targeting a move back into the range, while consolidation below the level would activate the breakout scenario, with targets at 1.3505 and 1.3480. In both cases, I would place the stop beyond the extreme point of the breakout rather than near a nearby round number, as obvious levels often attract a large number of market participants. Today, I would apply mean-reversion scenarios to the pound more cautiously than usual, because the move following the PPI release could be a genuine breakout rather than a false one.