07.07.202612:39 Forex Analysis & Reviews: Level and Target Adjustments for the U.S. Session – July 7th

Today, I traded the British pound using the Mean Reversion strategy. For the Japanese yen, I used the Momentum strategy.

The euro largely ignored the news that Germany's industrial production continued to show signs of stabilization. According to preliminary data, industrial output increased by 0.9% in May compared with April. This exceeded analysts' expectations of a 0.1% increase. On an annual basis, however, growth was just 0.1%, highlighting that the sector continues to face structural challenges. This cautious optimism is supported by a combination of factors. On the one hand, lower energy prices and the prospect of a more accommodative monetary policy could provide support to the manufacturing sector. On the other hand, geopolitical tensions remain elevated, while consumer demand continues to be constrained.

Next on the agenda are the U.S. trade balance report and the RCM/TIPP Economic Optimism Index. The trade balance measures the difference between a country's exports and imports and, over the long term, can influence demand for the national currency. However, it is generally regarded as a secondary market indicator, with market reactions typically remaining limited. The TIPP Index, in turn, measures U.S. consumer sentiment regarding personal finances and the economic outlook, but it carries considerably less weight than confidence indicators published by the Conference Board or the University of Michigan. Taken together, these releases belong to the second tier of economic data and are unlikely to provide the U.S. dollar with a clear directional bias.

For the euro and the pound, this suggests a neutral trading environment. In the absence of strong U.S. catalysts, the EUR/USD pair is likely to remain within its current trading range. The pound is expected to be in a similar position, with GBP/USD likely to be driven primarily by upcoming remarks from Andrew Bailey, which market participants are awaiting.

If the U.S. data come in significantly stronger than expected, I will rely on the Momentum strategy. If the market shows little or no reaction to the releases, I will continue using the Mean Reversion strategy.

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

EUR/USD

• A breakout above 1.1447 could push the euro toward 1.1486 and 1.1527.
• A breakout below 1.1409 could send the euro lower toward 1.1365 and 1.1328.

GBP/USD

• A breakout above 1.3398 could drive the pound toward 1.3432 and 1.3462.
• A breakout below 1.3365 could lead to a decline toward 1.3328 and 1.3298.

USD/JPY

• A breakout above 162.08 could lift the U.S. dollar toward 162.34 and 162.64.
• A breakout below 161.83 could trigger a decline toward 161.56 and 161.33.

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

EUR/USD

• I will look for selling opportunities after a false breakout above 1.1438, once the price moves back below this level.
• I will look for buying opportunities after a false breakout below 1.1420, once the price returns above this level.

GBP/USD

• I will look for selling opportunities after a false breakout above 1.3398, once the price moves back below this level.
• I will look for buying opportunities after a false breakout below 1.3368, once the price returns above this level.

AUD/USD

• I will look for selling opportunities after a false breakout above 0.6954, once the price moves back below this level.
• I will look for buying opportunities after a false breakout below 0.6935, once the price returns above this level.

USD/CAD

• I will look for selling opportunities after a false breakout above 1.4222, once the price moves back below this level.
• I will look for buying opportunities after a false breakout below 1.4204, once the price returns above this level.