Euro and Pound Resumed Declines Against the U.S. Dollar Yesterday, Driven by Strong U.S. Fundamentals

During the U.S. trading session, the euro and the pound returned to their downward movement against the U.S. dollar following the release of strong economic data from the United States.

Yesterday's report on U.S. manufacturing sector activity came in better than economists' expectations, leading to a sharp increase in the dollar. The PMI index, published by the Institute for Supply Management (ISM), showed an unexpected jump, signaling a slower contraction in manufacturing activity. This positive development boosted investor confidence in the resilience of the U.S. economy and enhanced the dollar's appeal as a safe-haven currency. As a result, the dollar's strengthening exerted pressure on other currencies, particularly the euro and Japanese yen.

Positive economic data from the eurozone will be crucial to restoring demand for EUR/USD. This applies particularly to the manufacturing sector, where PMI growth reports need to show confident momentum. A significant rise in this indicator would suggest industrial expansion, order growth, and improved business sentiment, prompting traders to buy the euro.

A decline in the Consumer Price Index (CPI) is also critical, indicating progress in taming inflation. Moderate inflation allows the European Central Bank to continue cutting interest rates, which supports economic growth. In this context, a stable decrease in CPI would strengthen confidence in the euro.

Another equally important factor is the unemployment rate in the eurozone. A decline would indicate job market improvement and higher employment, which translates to more consumer spending — another driver of economic growth. A consistent drop in unemployment would be an additional argument for strengthening the euro.

There are no scheduled data releases from the UK today, meaning the pound may get a chance to recover from yesterday's sell-off.

If the data matches economists' expectations, use a Mean Reversion strategy. Apply a Momentum strategy if the data is significantly above or below forecasts.

Momentum Strategy (Breakout):

EUR/USD

Buying on a breakout above 1.1320 could lead to a rise toward 1.1377 and 1.1437

Selling on a breakout below 1.1290 could lead to a decline toward 1.1260 and 1.1217

GBP/USD

Buying on a breakout above 1.3315 could lead to a rise toward 1.3335 and 1.3366

Selling on a breakout below 1.3290 could lead to a decline toward 1.3260 and 1.3225

USD/JPY

Buying on a breakout above 145.50 could lead to a rise toward 145.95 and 146.35

Selling on a breakout below 145.15 could trigger a decline toward 144.85 and 144.55

Mean Reversion Strategy (Pullbacks):

EUR/USD

Look for selling opportunities after a failed breakout above 1.1323, followed by a return below this level

Look for buying opportunities after a failed breakout below 1.1272, followed by a return above this level

GBP/USD

Look for selling opportunities after a failed breakout above 1.3316, followed by a return below

Look for buying opportunities after a failed breakout below 1.3266, followed by a return above

AUD/USD

Look for selling opportunities after a failed breakout above 0.6437, followed by a return below

Look for buying opportunities after a failed breakout below 0.6373, followed by a return above

USD/CAD

Look for selling opportunities after a failed breakout above 1.3859, followed by a return below

Look for buying opportunities after a failed breakout below 1.3805, followed by a return above