The British pound was traded today using the Mean Reversion strategy. I traded the yen using the Momentum strategy.

Eurozone inflation accelerated to 2.9% y/y from 2.8% in June, while the final Eurostat estimate confirmed the preliminary reading. As a reminder, the Consumer Price Index reflects the rate of price growth and directly affects expectations for ECB policy; however, this time, the entire acceleration was driven by the energy sector. For the ECB, however, another part of the report looks much more concerning. Services inflation accelerated to 3.3% and accounted for more than half of overall inflation, while core inflation rose to 2.5%. This is why the market responded with a rise in the euro, increasingly pricing in tighter monetary policy, as many economists expect the deposit rate to be raised from 2.25% to 2.50%.

The pound also rose after news that UK inflation accelerated to 2.9% in July from 2.6% in June. The energy sector made the largest contribution to the acceleration, as energy prices rose by 13%. Nevertheless, services inflation fell to 3.4% from 3.6%. The slowdown in services indicates that underlying inflation is gradually cooling, while the overall acceleration is energy-driven. This created a mixed picture for the pound, as higher headline inflation supported buying, but easing in the core components limited the case for further monetary policy tightening by the Bank of England.

In the second half of the day, the most important event will be the release of the minutes of the latest Federal Reserve meeting, which was notable for an unusually hawkish division among policymakers. As a reminder, the decision to keep rates unchanged passed by a vote of nine to three, while three committee members called for an immediate rate hike. The minutes will reveal details of that discussion, and the market will scrutinize them for indications of how serious the hawks' intentions are and whether there is a risk of tightening at upcoming meetings. This is why the document could move the dollar significantly, as any confirmation of a hawkish stance would increase demand for the U.S. currency.

The implications for the euro and the pound are direct. If the minutes confirm that some Fed officials are prepared to raise rates, the dollar will strengthen, putting pressure on EUR/USD and GBP/USD. Softer wording, by contrast, would weaken the U.S. currency and give both European currencies some relief.

If the economic data are strong, I will rely on the Momentum strategy. If the market does not react to the data, I will continue using the Mean Reversion strategy.

Momentum Strategy (Breakout) for the Second Half of the Day:

For EURUSD

• Buying on a breakout above 1.1613 could lead to a rise in the euro toward 1.1645 and 1.1664.
• Selling on a breakout below 1.1592 could lead to a decline in the euro toward 1.1568 and 1.1543.

For GBPUSD

• Buying on a breakout above 1.3569 could lead to a rise in the pound toward 1.3588 and 1.3608.
• Selling on a breakout below 1.3545 could lead to a decline in the pound toward 1.3525 and 1.3499.

For USDJPY

• Buying on a breakout above 159.13 could lead to a rise in the dollar toward 159.39 and 159.60.
• Selling on a breakout below 158.80 could lead to a decline in the dollar toward 158.57 and 158.27.

Mean Reversion Strategy (Return) for the Second Half of the Day:

For EURUSD

• I will look for selling opportunities after a failed break above 1.1614 and a return below this level.
• I will look for buying opportunities after a failed break below 1.1590 and a return to this level.

For GBPUSD

• I will look for selling opportunities after a failed break above 1.3569 and a return below this level.
• I will look for buying opportunities after a failed break below 1.3544 and a return to this level.

For AUDUSD

• I will look for selling opportunities after a failed break above 0.7091 and a return below this level.
• I will look for buying opportunities after a failed break below 0.7075 and a return to this level.

For USDCAD

• I will look for selling opportunities after a failed break above 1.3895 and a return below this level.
• I will look for buying opportunities after a failed break below 1.3860 and a return to this level.