The Euro and Pound Show Strong Volatility and Solid Gains Ahead of the Federal Reserve Meeting

Yesterday's weak U.S. trade balance data put significant pressure on the dollar. Traders interpreted the figures as a sign of a further slowdown in U.S. economic growth, which reduced the appeal of the American currency.

The euro responded to the dollar's weakness by strengthening, and the British pound followed suit. Positive PMI data released earlier in the day also supported the European currency.

In the short term, the dollar's further performance will depend on upcoming U.S. macroeconomic data and the Federal Reserve's policy decision, which will be addressed in the forecast for the second half of the day.

Attention should now be focused on the changes in German industrial orders and eurozone retail sales volumes for March of this year. Only a decisive surge in these indicators could breathe life into the single European currency, providing momentum for new buying. The market is eager to see confirmation of the eurozone economy's resilience, which could outweigh current concerns about inflation and geopolitical tensions.

Today, we will also see the release of the UK construction PMI for April. This indicator reflects business activity trends in one of the most vital sectors of the British economy. Market participants eagerly await the results, which will offer insights into the current state of the construction sector and its outlook. A rising PMI indicates sector expansion, new contracts, job growth, and positive sentiment among construction firms. Conversely, a decline signals a slowdown, reduced workload, and growing uncertainty.

If the data matches economists' expectations, acting based on the Mean Reversion strategy is better. If the data comes out significantly higher or lower than expected, the Momentum strategy would be more appropriate.

Momentum Strategy (Breakout):

EUR/USD

Buying on a breakout above 1.1380 may lead to a rise toward 1.1416 and 1.1453;

Selling on a breakout below 1.1350 may lead to a drop toward 1.1320 and 1.1290.

GBP/USD

Buying on a breakout above 1.3370 may lead to a rise toward 1.3400 and 1.3437;

Selling on a breakout below 1.3340 may lead to a decline toward 1.3314 and 1.3260.

USD/JPY

Buying on a breakout above 143.20 may lead to a rise toward 143.63 and 144.00;

Selling on a breakout below 142.80 may trigger a decline toward 142.35 and 142.00.

Mean Reversion Strategy (Pullbacks):

EUR/USD

I will look for sell opportunities after a failed breakout above 1.1385 followed by a return below that level;

I will look for buy opportunities after a failed breakout below 1.1327 followed by a return above that level.

GBP/USD

I will look for sell opportunities after a failed breakout above 1.3378 followed by a return below that level;

I will look for buy opportunities after a failed breakout below 1.3324 followed by a return above that level.

AUD/USD

I will look for sell opportunities after a failed breakout above 0.6500 followed by a return below that level;

I will look for buy opportunities after a failed breakout below 0.6470 followed by a return above that level.

USD/CAD

I will look for sell opportunities after a failed breakout above 1.3808 followed by a return below that level;

I will look for buy opportunities after a failed breakout below 1.3781 followed by a return above that level.