03.08.202615:10 Forex Analysis & Reviews: Level and Target Adjustments for the U.S. Session – August 3

The British pound and the Canadian dollar performed well today using the Mean Reversion strategy. I traded the Australian dollar and the Japanese yen using the Momentum strategy.

The market remains under the control of buyers of risk-sensitive assets, but attention now turns to the release of the U.S. ISM Manufacturing PMI for July. The indicator is based on surveys of purchasing managers and reflects the health of the U.S. manufacturing sector. A reading above 50 indicates expansion, while a reading below 50 signals contraction. Through this channel, the report influences expectations regarding Federal Reserve interest rate policy and the strength of the U.S. dollar. Since this is a revised estimate, the market will closely watch whether the data are revised higher or lower compared with the preliminary reading.

If the data are revised upward and exceed economists' expectations, pressure on dollar pairs is likely to intensify. Strong manufacturing activity would reinforce the case for the Federal Reserve to maintain a restrictive monetary policy, supporting the U.S. dollar and putting pressure on EUR/USD and GBP/USD. Conversely, weaker-than-expected data would weigh on the dollar and give both European currencies a fresh opportunity to advance.

If the data are strong, I will rely on the Momentum strategy. If the market shows little or no reaction to the release, I will continue using the Mean Reversion strategy.

Momentum Strategy (Breakout) for the Second Half of the Day

EUR/USD

• A breakout above 1.1530 could push the euro toward 1.1557 and 1.1590.
• A breakout below 1.1515 could send the euro lower toward 1.1480 and 1.1460.

GBP/USD

• A breakout above 1.3470 could lift the pound toward 1.3500 and 1.3539.
• A breakout below 1.3450 could push the pound down toward 1.3430 and 1.3400.

USD/JPY

• A breakout above 156.75 could drive the U.S. dollar toward 157.05 and 157.40.
• A breakout below 156.35 could trigger a decline toward 155.95 and 155.55.

Mean Reversion Strategy (Reversal) for the Second Half of the Day

EUR/USD

• I will look for selling opportunities if the price fails to hold above 1.1540 and returns below this level.
• I will look for buying opportunities if the price briefly falls below 1.1512 but then rebounds back above this level.

GBP/USD

• I will look for selling opportunities if the price fails to hold above 1.3475 and returns below this level.
• I will look for buying opportunities if the price briefly falls below 1.3438 but then rebounds back above this level.

AUD/USD

• I will look for selling opportunities if the price fails to hold above 0.7025 and returns below this level.
• I will look for buying opportunities if the price briefly falls below 0.6991 but then rebounds back above this level.

USD/CAD

• I will look for selling opportunities if the price fails to hold above 1.4045 and returns below this level.
• I will look for buying opportunities if the price briefly falls below 1.4026 but then rebounds back above this level.