The American dollar has regained its advantage against riskier assets, and there were significant reasons for this.

The dollar rose against all currencies after Kevin Warsh's speech in Jackson Hole, where the tone was tougher than expected. The main takeaway from the Federal Reserve chair was that the central bank's focus should now be on prices, which immediately set a hawkish tone. According to him, inflation remains a problem, with PCE at 3.7% over 12 months and 4.1% over 6 months, and the summer improvement does not indicate that underlying trends have significantly improved. To illustrate, Warsh analyzed 199 components of the index, noting that already 54% of goods and services are rising in price faster than 3%, compared to 32% in the two pre-COVID decades. His assessment of the economy was equally confident.

For the euro and the pound, such a tough message translated into pressure, and both European currencies weakened against the dollar. The strengthening of the US dollar amid rising expectations of tighter policy weighed on EUR/USD and GBP/USD.

Today, in the first half of the day, attention regarding the euro will be on the consumer price index (CPI) data from Germany and the harmonized index according to EU standards. The consumer price index reflects the inflation rate and directly influences expectations for European Central Bank policy, while the harmonized index is important because it is calculated using a unified methodology, allowing comparisons of inflation between the countries in the bloc; this is what the central bank relies on when assessing price pressures. Through these channels, the data can significantly impact market sentiment.

The outlook for the euro is challenging. If the numbers are noticeably above economists' forecasts, this will give the euro a chance for a short-term recovery, as accelerating inflation will strengthen arguments for a hawkish ECB stance. Nevertheless, given the recent pressure on the euro following Warsh's hawkish speech, a significant surprise will be needed for a reversal. At the same time, a result within the forecast will leave the EUR/USD pair dependent on the dollar.

For the British pound, the situation is roughly the same but without data. Given that there are again no fundamental reports on the UK in the first half of the day, pressure on GBP/USD is likely to continue. Without fresh internal drivers, the pound remains dependent on external forces, with prevailing sentiment around the dollar as the primary guide; thus, the pair can only break the downward trend with a weakening dollar.

If the data matches economists' expectations, it is better to act based on the Mean Reversion strategy. If the data is significantly higher or lower than economists' expectations, it is best to use the Momentum strategy.

Momentum Strategy (Breakout):

For the EUR/USD Pair

Buy on a breakout above the level of 1.1598, which may lead to a rise towards 1.1620 and 1.1639;

Sell on a breakout below the level of 1.1572, which may lead to a drop towards 1.1554 and 1.1534;

For the GBP/USD Pair

Buy on a breakout above the level of 1.3551, which may lead to a rise towards 1.3574 and 1.3596;

Sell on a breakout below the level of 1.3527, which may lead to a drop towards 1.3502 and 1.3475;

For the USD/JPY Pair

Buy on a breakout above the level of 160.02, which may lead to a rise towards 160.24 and 160.43;

Sell on a breakout below the level of 159.80, which may lead to a drop towards 159.60 and 159.39;

Mean Reversion Strategy (Return):

For the EUR/USD Pair

Look for sell opportunities after a failed breakout above 1.1601 when the price returns below this level;

Look for buy opportunities after a failed breakout below 1.1580 when the price returns to this level;

For the GBP/USD Pair

Look for sell opportunities after a failed breakout above 1.3551 when the price returns below this level;

Look for buy opportunities after a failed breakout below 1.3533 when the price returns to this level;

For the AUD/USD Pair

Look for sell opportunities after a failed breakout above 0.7177 when the price returns below this level;

Look for buy opportunities after a failed breakout below 0.7160 when the price returns to this level;

For the USD/CAD Pair

Look for sell opportunities after a failed breakout above 1.3902 when the price returns below this level;

Look for buy opportunities after a failed breakout below 1.3885 when the price returns to this level;