The pound once again responded very well to the Mean Reversion strategy today. I traded the Japanese yen using Momentum.

According to the data, eurozone retail sales fell by 0.6% in July after increasing by 0.2% in June, while the decline across the EU was 0.4%, with annual growth almost disappearing, falling to a symbolic 0.6%. Let me remind you that retail sales reflect consumer demand, and such a sharp decline indicates a noticeable cooling in demand. The structure of the decline is particularly telling, as food sales increased by 0.4%, while non-food products fell by 1.4%, meaning that Europeans continue to buy food while cutting back on everything else. In my view, this is typical consumer behavior when high energy costs eat into disposable income.

Germany was primarily responsible for the result, with a 3.4% monthly decline, followed by Spain. The German figures are particularly interesting against the backdrop of the recent jump in the Ifo index to 88.8, the upward revision to GDP, and the first annual increase in industrial production since the beginning of 2023. I believe the explanation is simple, as the economy is growing through exports and investment without benefiting consumers, who have lost 212,000 jobs over the past year.

The euro responded to all this with a decline, but, as I expected, there was no major sell-off. The market is looking ahead to the ECB meeting on September 10, where a rate increase to 2.5% is almost fully priced in, and this anchor kept the single currency from falling more sharply.

Now all attention is turning to the statistics that traders have been waiting for all week — the change in U.S. nonfarm employment for August. According to economists' forecasts, the increase is expected to be around 50,000, while the unemployment rate is expected to remain unchanged at around 4.1%. Employment is considered one of the most important economic indicators, as the number of jobs created is used by the market to assess economic dynamics, while the unemployment rate reflects labor-market conditions. The report is particularly significant because the entire U.S. labor-market data flow this week has been frankly disappointing: ADP showed only 38,000 new jobs, the lowest figure since January, while JOLTS data pointed to a decline in hiring.

In my view, this backdrop makes Friday's report twice as important. If the data match forecasts, this will not in itself rule out a Federal Reserve rate hike in September, as the central bank shifted its focus toward prices following Jackson Hole. However, I believe that only a very significant second consecutive disappointment in the number of people employed could put pressure on the central bank and force it to seriously consider a pause.

The implications for the euro and the pound are straightforward. A weak report would weaken the dollar and support EUR/USD and GBP/USD, while a result in line with forecasts would most likely allow the U.S. currency to retain its advantage. I expect elevated volatility during the second half of the day, and in my assessment, the outcome will ultimately favor the dollar.

In the event of strong data, 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 1.1630 could lead to a rise in the euro toward 1.1641 and 1.1657.
• Selling on a breakout below 1.1615 could lead to a decline in the euro toward 1.1600 and 1.1584.

For GBPUSD

• Buying on a breakout above 1.3545 could lead to a rise in the pound toward 1.3573 and 1.3596.
• Selling on a breakout below 1.3521 could lead to a decline in the pound toward 1.3501 and 1.3480.

For USDJPY

• Buying on a breakout above 156.40 could lead to a rise in the dollar toward 156.75 and 157.05.
• Selling on a breakout below 156.02 could lead to a decline in the dollar toward 155.56 and 155.23.

Mean Reversion Strategy (return) for the second half of the day:

For EURUSD

• I will look for selling opportunities after a failed breakout above 1.1636, followed by a return below this level.
• I will look for buying opportunities after a failed breakout below 1.1604, followed by a return to this level.

For GBPUSD

• I will look for selling opportunities after a failed breakout above 1.3559, followed by a return below this level.
• I will look for buying opportunities after a failed breakout below 1.3500, followed by a return to this level.

For AUDUSD

• I will look for selling opportunities after a failed breakout above 0.7217, followed by a return below this level.
• I will look for buying opportunities after a failed breakout below 0.7192, followed by a return to this level.

For USDCAD

• I will look for selling opportunities after a failed breakout above 1.3813, followed by a return below this level.
• I will look for buying opportunities after a failed breakout below 1.3785, followed by a return to this level.