Analysis of Macroeconomic Reports:
Very few macroeconomic events are scheduled for Wednesday, and in any case, they are unlikely to have any meaningful impact on either of the currency pairs. The euro remains in an absolute flat, while the British pound is also in a flat range, though broader and less obvious. Throughout the day, only the retail sales report from the Eurozone may attract some interest among traders until the evening. But what kind of reaction can be expected from this report? A 20–30-pip move at best? Even the evening FOMC meeting might not necessarily trigger a response from the market.
Analysis of Fundamental Events:
It still makes little sense to discuss any fundamental events, aside from Trump's trade war, although the escalation has been paused. The dollar's decline could resume if Donald Trump starts imposing new tariffs or increasing existing ones. Any escalation could lead to another drop in the dollar, while any de-escalation could strengthen it. The U.S. President has begun to shift his rhetoric toward China in a softer direction, but that doesn't yet qualify as de-escalation. As we know, there are no official negotiations with China, so any talk of a trade deal in the near future is unfounded. Trade between China and the U.S. has already essentially come to a halt.
Trump understands that further tariff increases could severely damage the U.S. economy. Therefore, we will likely not see new aggressive actions from the U.S. President in the near term. Last Wednesday, we saw how the U.S. economy reacts to Trump's trade policy. This evening, the results of the FOMC meeting will be announced. Theoretically, Jerome Powell's tone could become more dovish, but we believe the Fed remains primarily focused on inflation. As such, we do not expect a significant shift in tone. Still, any hint of a softening stance spells trouble for the dollar.
General Conclusions:
On the third trading day of the week, both currency pairs may move in either direction. The euro may continue trading sideways, although the rebound from the 1.1275 level has triggered a new upward leg. The British pound continues to show a stronger desire to rise, but is effectively still in a range-bound market. The macroeconomic background will not influence traders' sentiment. Only the evening FOMC meeting might provoke a reaction, but that reaction is unlikely to be strong enough to end the flat movement in either pair.
Key Rules for the Trading System:
- Signal Strength: The shorter the time it takes for a signal to form (a rebound or breakout), the stronger the signal.
- False Signals: If two or more trades near a level result in false signals, subsequent signals from that level should be ignored.
- Flat Markets: In flat conditions, pairs may generate many false signals or none at all. It's better to stop trading at the first signs of a flat market.
- Trading Hours: Open trades between the start of the European session and the middle of the US session, then manually close all trades.
- MACD Signals: On the hourly timeframe, trade MACD signals only during periods of good volatility and a clear trend confirmed by trendlines or trend channels.
- Close Levels: If two levels are too close (5–20 pips apart), treat them as a support or resistance zone.
- Stop Loss: Set a Stop Loss to breakeven after the price moves 15–20 pips in the desired direction.
Key Chart Elements:
Support and Resistance Levels: These are target levels for opening or closing positions and can also serve as points for placing Take Profit orders.
Red Lines: Channels or trendlines indicating the current trend and the preferred direction for trading.
MACD Indicator (14,22,3): A histogram and signal line used as a supplementary source of trading signals.
Important speeches and reports, which are consistently featured in the news calendar, can significantly influence the movement of a currency pair. Therefore, during their release, it is advisable to trade with caution or consider exiting the market to avoid potential sharp price reversals against the prior trend.
Beginners in the Forex market should understand that not every transaction will be profitable. Developing a clear trading strategy and practicing effective money management are crucial for achieving long-term success in trading.
