The Euro and Pound Fall After the Federal Reserve Leaves Rates Unchanged

The euro and the pound declined after the U.S. Federal Reserve decided to leave interest rates unchanged. However, during today's Asian session, the pound has already recovered most of its losses, while the euro still struggles.

Yesterday, the Fed left interest rates unchanged at 4.50%. Federal Reserve Chair Jerome Powell stated that policymakers are in no hurry to adjust interest rates, as introducing tariffs could lead to rising inflation despite weak economic growth in the first quarter of this year. The market reacted to this news with mixed sentiment. On one hand, keeping rates steady reflects the Fed's cautious approach to the current economic situation. On the other hand, Powell's comments about potential risks stemming from trade policy caused some concern among investors.

Economists are divided on the Fed's next steps. Some believe that, given the current macroeconomic data, there is no need for sharp changes in monetary policy. Others argue that if inflation rises, the Fed will be forced to raise rates more aggressively to contain price growth. Overall, the Fed's decision to leave rates unchanged was widely expected.

Today, market participants await the release of German industrial production data and the country's trade balance figures. These indicators traditionally have limited impact on the euro's exchange rate but are important gauges of the country's economic health. A modest increase in industrial output, potentially signaling a recovery after recent challenges, could prompt a rise in the euro.

Also in the spotlight today is the Bank of England's decision on its key interest rate, which is forecast to be lowered to 4.25%. Traders will be closely watching the release of the Bank's Monetary Policy Report. Any signs of future interest rate changes will be carefully scrutinized. A rate cut may help stimulate economic growth, but it also carries the risk of fueling inflation and weakening the pound. The report will also provide a more detailed analysis of the current state of the economy and inflation forecasts. Traders will seek guidance on the Bank's next steps and its assessment of potential risks and opportunities.

The Mean Reversion strategy is advisable if the data aligns with economists' expectations. The Momentum strategy is more appropriate if the figures significantly deviate from expectations.

Momentum Strategy (Breakout):

EUR/USD

Buying on a breakout above 1.1340 may lead to euro rising toward the 1.1380 and 1.1415 areas.

Selling on a breakout below 1.1315 may lead to euro falling toward the 1.1280 and 1.1220 areas.

GBP/USD

Buying on a breakout above 1.3360 may lead to pound rising toward the 1.3400 and 1.3437 areas.

Selling on a breakout below 1.3330 may lead to pound falling toward the 1.3290 and 1.3260 areas.

USD/JPY

Buying on a breakout above 143.70 may lead to the dollar rising toward the 144.09 and 144.46 areas.

Selling on a breakout below 143.25 may lead to dollar selling off toward the 142.79 and 142.32 areas.

Mean Reversion Strategy (Pullbacks):

EUR/USD

I will look to sell after a failed breakout above 1.1348, once the price returns below this level.

I will look to buy after a failed breakout below 1.1287, once the price returns to this level.

GBP/USD

I will look to sell after a failed breakout above 1.3385, once the price returns below this level.

I will look to buy after a failed breakout below 1.3312, once the price returns to this level.

AUD/USD

I will look to sell after a failed breakout above 0.6483, once the price returns below this level.

I will look to buy after a failed breakout below 0.6445, once the price returns to this level.

USD/CAD

I will look to sell after a failed breakout above 1.3842, once the price returns below this level.

I will look to buy after a failed breakout below 1.3806, once the price returns to this level.