The Euro and the Pound Plunged, and There Were Several Reasons for That

Yesterday, the U.S. dollar resumed its growth after Federal Reserve Chair Jerome Powell stated that the central bank needs to remain vigilant due to the risk of inflation. Powell's decision, contrary to the expectations of many analysts, strengthened the dollar's position in global markets. Investors interpreted his comments as a sign of the Fed's firm commitment to fighting inflation—even at the cost of slowing economic growth—whereas many had expected a softer tone. This hawkish stance reflects the central bank's independence from political pressure and its dedication to maintaining price stability.

However, not everyone agrees with this approach. The White House has repeatedly expressed concern about high interest rates, arguing that they hinder economic growth and make American goods less competitive in global markets. Two members of the FOMC have also spoken in favor of a rate cut, fearing that excessively tight monetary policy could trigger a recession.

The dollar's growth was also supported by strong U.S. GDP data for the second quarter. The indicator jumped by 3.0%, exceeding economists' forecasts. This unexpected growth was a welcome surprise for investors and strengthened confidence in the resilience of the U.S. economy. The better-than-expected figure suggests that, despite inflationary pressures and tight monetary policy, the U.S. economy continues to grow and show potential. In particular, the improvement in GDP figures has eased recession fears that had loomed over the market in recent months.

Today, pressure on the euro may persist. Even weak data on France and Germany's CPI, Germany's unemployment figures, and a rise in the Eurozone unemployment rate could be enough. Traders will closely monitor the release of these key economic indicators. A surprise deterioration in any of them may trigger another wave of euro sell-offs, as it would reinforce concerns about slowing economic growth in the region. The Consumer Price Index will be especially important, as it is one of the main inflation indicators. A low inflation reading could prompt the European Central Bank to return to a dovish monetary policy, putting further pressure on the euro.

A rise in unemployment, especially in Germany—the largest economy in the Eurozone—would be another worrying sign. An increase in joblessness could point to issues in the manufacturing sector and declining consumer demand.

If the data matches economists' expectations, it's better to use the Mean Reversion strategy. If the data is much stronger or weaker than expected, the Momentum strategy is more appropriate.

Momentum Strategy (Breakout):

EUR/USD

Buy on a breakout above 1.1440 may lead to growth toward 1.1475 and 1.1501

Sell on a breakout below 1.1405 may lead to a decline toward 1.1377 and 1.1347

GBP/USD

Buy on a breakout above 1.3273 may lead to growth toward 1.3311 and 1.3342

Sell on a breakout below 1.3230 may lead to a decline toward 1.3180 and 1.3126

USD/JPY

Buy on a breakout above 149.03 may lead to growth toward 149.32 and 149.62

Sell on a breakout below 148.76 may lead to a drop toward 148.50 and 148.23

Mean Reversion Strategy (Pullbacks):

EUR/USD

Look to sell after a failed breakout above 1.1454, once the price returns below that level

Look to buy after a failed breakout below 1.1395, once the price returns above that level

GBP/USD

Look to sell after a failed breakout above 1.3274, once the price returns below that level

Look to buy after a failed breakout below 1.3223, once the price returns above that level

AUD/USD

Look to sell after a failed breakout above 0.6467, once the price returns below that level

Look to buy after a failed breakout below 0.6431, once the price returns above that level

USD/CAD

Look to sell after a failed breakout above 1.3859, once the price returns below that level

Look to buy after a failed breakout below 1.3814, once the price returns above that level