27.08.202613:48 Analisis Forex & Kajian: Level and Target Adjustments for the U.S. Session – August 27

The euro and pound could have been traded today using the Mean Reversion strategy, but there were no meaningful reversals. I did not trade anything using Momentum.

The euro effectively ignored the released report, despite its generally hawkish content. The broad M3 monetary aggregate accelerated to 3.4% year-on-year from 3.3% in June, but the lending dynamics proved much more interesting. Lending to the private sector accelerated to 4.1% from 3.8%, with loans to non-financial corporations surging to 4.4% from 4.0%, while lending to households increased by only 3.1%. The M3 aggregate reflects the amount of money in circulation, while lending activity shows how willing businesses and households are to borrow, so such an acceleration points to an economic recovery. Notably, it is primarily businesses, rather than households, that are driving the demand for credit. This is an unwelcome conclusion for the regulator, as the economy continues to grow at the current interest rate, which will likely lead to another bout of inflation. Nevertheless, the euro barely reacted to these signals, remaining dependent on external factors.

In the second half of the day, the market is awaiting the U.S. weekly initial jobless claims data, as well as the goods trade balance. Jobless claims are released weekly and serve as a timely barometer of the labor market, as an increase signals weakening employment conditions, while a decline indicates resilience. The trade balance reflects the difference between goods exports and imports and affects demand for the currency over the longer term, but it is considered a secondary short-term driver. For the euro and pound, these releases pose a moderate risk. A strong labor market could support the dollar and weigh on EUR/USD and GBP/USD, while an increase in claims would weaken the U.S. currency and give both European pairs some breathing room. Given the secondary importance of these data, a strong move should not be expected.

If the data are strong, I will rely on the Momentum strategy. If there is no market reaction to the data, I will continue to use the Mean Reversion strategy.

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

For EUR/USD

• Buying on a breakout above 1.1650 could lead to a rise in the euro toward 1.1673 and 1.1690;
• Selling on a breakout below 1.1623 could lead to a decline in the euro toward 1.1601 and 1.1586;

For GBP/USD

• Buying on a breakout above 1.3596 could lead to a rise in the pound toward 1.3620 and 1.3647;
• Selling on a breakout below 1.3571 could lead to a decline in the pound toward 1.3546 and 1.3524;

For USD/JPY

• Buying on a breakout above 159.60 could lead to a rise in the dollar toward 159.83 and 160.02;
• Selling on a breakout below 159.39 could lead to a decline in the dollar toward 159.13 and 158.83;

Mean Reversion Strategy (Return) for the Second Half of the Day:

For EUR/USD

• I will look for selling opportunities after a failed break above 1.1655, followed by a return below this level;
• I will look for buying opportunities after a failed break below 1.1632, followed by a return to this level;

For GBP/USD

• I will look for selling opportunities after a failed break above 1.3593, followed by a return below this level;
• I will look for buying opportunities after a failed break below 1.3561, followed by a return to this level;

For AUD/USD

• I will look for selling opportunities after a failed break above 0.7193, followed by a return below this level;
• I will look for buying opportunities after a failed break below 0.7174, followed by a return to this level;

For USD/CAD

• I will look for selling opportunities after a failed break above 1.3891, followed by a return below this level;
• I will look for buying opportunities after a failed break below 1.3874, followed by a return to this level;