12.05.202613:30 Forex Analysis & Reviews: Level and Target Adjustments for the U.S. Session – May 12th

Today, only the euro was traded using the Mean Reversion strategy, but no meaningful reversal movement materialized. Using the Momentum strategy, I traded the British pound, which collapsed due to domestic political issues.

The euro adopted a wait-and-see stance despite encouraging economic signals from Germany. According to the latest data, optimism among German investors is showing steady improvement, fueled by hopes for a swift resolution to the Middle East conflict. This trend reduces the immediate threat to Europe's largest economy, allowing investors to look to the future with greater confidence.

According to recent figures, the Economic Sentiment Index calculated by the respected ZEW Institute reached -10.2 points in May. This represents a significant improvement from April's reading of -17.2 points. It is worth noting that the current result exceeded analysts' average expectations, which had forecast a reading of -19.5 points. Such growth in optimism suggests that investors are beginning to reassess potential risks and see opportunities for a recovery in economic activity.

The British pound collapsed as a direct consequence of growing domestic political disagreements negatively affecting the United Kingdom's economic situation. According to reports, Prime Minister Keir Starmer, contrary to expectations, does not intend to voluntarily step down and is preparing for a fierce battle over party leadership. His address to cabinet members sounded like an open confrontation with those he believes are trying to remove him from office.

Market participants will next focus on the release of key US inflation data. The Consumer Price Index data for April, as well as the core CPI measure excluding volatile components such as food and energy prices, are expected to become the main drivers of market movements. The figures are expected to come in below March's readings. If the inflation release deviates from economists' forecasts, increased volatility in the currency market is likely.

Also scheduled for today is a speech by Federal Open Market Committee member Austan D. Goolsbee. Statements from central bank representatives are always an important source of information for the market. Attention will focus on any hints or comments regarding inflation trends, the state of the economy, and the outlook for monetary policy. Goolsbee's remarks could either confirm current expectations for interest rate hikes later this year.

In the event of strong economic data, I will rely on implementing the Momentum strategy. If the market shows no reaction to the data, I will continue using the Mean Reversion strategy.

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

For EUR/USD

• Buying on a breakout above 1.1751 could lead to euro growth toward 1.1786 and 1.1819;
• Selling on a breakout below 1.1724 could lead to euro decline toward 1.1701 and 1.1678;

For GBP/USD

• Buying on a breakout above 1.3557 could lead to pound growth toward 1.3585 and 1.3617;
• Selling on a breakout below 1.3520 could lead to pound decline toward 1.3490 and 1.3455;

For USD/JPY

• Buying on a breakout above 157.70 could lead to dollar growth toward 157.99 and 158.35;
• Selling on a breakout below 157.40 could lead to dollar sell-offs toward 156.90 and 156.65;

Mean Reversion Strategy for the Second Half of the Day

For EUR/USD

• I will look for selling opportunities after a failed breakout above 1.1764 followed by a return below this level;
• I will look for buying opportunities after a failed breakout below 1.1735 followed by a return above this level;

For GBP/USD

• I will look for selling opportunities after a failed breakout above 1.3585 followed by a return below this level;
• I will look for buying opportunities after a failed breakout below 1.3510 followed by a return above this level;

For AUD/USD

• I will look for selling opportunities after a failed breakout above 0.7236 followed by a return below this level;
• I will look for buying opportunities after a failed breakout below 0.7210 followed by a return above this level;

For USD/CAD

• I will look for selling opportunities after a failed breakout above 1.3722 followed by a return below this level;
• I will look for buying opportunities after a failed breakout below 1.3691 followed by a return above this level.