07.05.202613:24 Forex Analysis & Reviews: Level and Target Adjustments for the U.S. Session – May 7th

Due to the highly directional movement in the euro and the British pound today, I did not execute any trades using the Mean Reversion strategy. I also did not find any suitable entry opportunities using the Momentum strategy.

Given the complete uncertainty and confusion surrounding the situation in the Middle East — with the United States saying one thing and Iran stating another — as well as fairly decent data from the eurozone and extremely weak construction sector activity data from the United Kingdom, the rise of the euro and pound during the first half of the day is surprising.

Market attention will now gradually shift toward U.S. economic data. The main focus will be on initial jobless claims figures. This leading indicator of the health of the U.S. labor market — the most important component of the American economy — could determine the direction of the dollar in the second half of the day. Any significant deviation from expectations could instantly outweigh the cautious positive momentum in the euro, pound, and other risk-sensitive assets.

At the same time, speeches from members of the Federal Reserve's Federal Open Market Committee (FOMC) are expected. Remarks by Beth M. Hammack and John Williams will be closely watched. Every word and every tone regarding inflation expectations, labor market resilience, and the future path of interest rates will be carefully analyzed. A hawkish stance could allow the U.S. dollar to regain leadership.

In the event of strong economic data, I will rely on the Momentum strategy. If the market shows little 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 1.1784 may lead to euro growth toward 1.1804 and 1.1825;
• Selling on a breakout below 1.1756 may lead to a decline toward 1.1726 and 1.1701;

For GBP/USD

• Buying on a breakout above 1.3641 may lead to pound growth toward 1.3675 and 1.3707;
• Selling on a breakout below 1.3609 may lead to a decline toward 1.3579 and 1.3547;

For USD/JPY

• Buying on a breakout above 156.43 may lead to dollar growth toward 156.73 and 157.05;
• Selling on a breakout below 156.00 may lead to dollar selling toward 155.56 and 155.23;

Mean Reversion Strategy for the Second Half of the Day

For EUR/USD

• I will look for selling opportunities after a false breakout above 1.1791 followed by a return below this level;
• I will look for buying opportunities after a false breakout below 1.1760 followed by a return above this level;

For GBP/USD

• I will look for selling opportunities after a false breakout above 1.3645 followed by a return below this level;
• I will look for buying opportunities after a false breakout below 1.3612 followed by a return above this level;

For AUD/USD

• I will look for selling opportunities after a false breakout above 0.7276 followed by a return below this level;
• I will look for buying opportunities after a false breakout below 0.7250 followed by a return above this level;

For USD/CAD

• I will look for selling opportunities after a false breakout above 1.3635 followed by a return below this level;
• I will look for buying opportunities after a false breakout below 1.3611 followed by a return above this level.