Intraday Strategies for Beginner Traders on August 20

Yesterday, the U.S. dollar plummeted sharply against all risky assets, even losing ground to the Japanese yen.

Although the minutes from the July FOMC meeting were more hawkish than the decision itself, the dollar weakened significantly, primarily due to the U.S. Treasury's decision to increase the volume of bond buybacks. The minutes set a hawkish tone, as the interest rate was kept in the range of 3.50%–3.75% for the fifth consecutive time, yet the vote passed with a count of nine to three, with Harker, Kashkari, and Logan calling for a 25 basis point increase. This is the first time since September 2016 that three participants have disagreed with the majority in one direction, highlighting the divide within the central bank.

However, the market focused not on the Federal Reserve's rhetoric but on the Treasury's actions. The increase in bond buybacks raises demand for debt securities and adds liquidity, which puts pressure on yields and weakens the dollar, and this factor outweighed the hawkish message from the minutes. This is why the U.S. currency retreated, despite arguments in favor of tightening policy. For the euro and pound, this situation provided support. The weakening dollar allowed both European currencies to strengthen, and EUR/USD and GBP/USD rose, reflecting the diminished demand for the U.S. currency. However, the sustainability of their growth remains in question, as the Fed's hawkish stance is still in play, and if the market's focus shifts back to the prospect of a rate hike, the dollar could regain its lost ground.

Today, the focus for the euro will be on the German Producer Price Index and the Bundesbank's monthly report. The Producer Price Index reflects the dynamics of producer prices and serves as an early inflation signal, as rising business costs are eventually passed on to consumer prices. The Bundesbank report, in turn, provides the German central bank's assessment of the current situation and economic prospects, which the market uses to gauge sentiment regarding ECB policy.

For the euro, this data is directly relevant, especially given the recent acceleration of inflation in the Eurozone, largely driven by rising energy prices. An increase in producer prices, coupled with optimistic forecasts from the central bank, could lead to a new wave of euro strengthening against the dollar, as it would bolster expectations of a more hawkish stance from the European Central Bank. Conversely, weak figures would dampen this sentiment, so the EUR/USD pair will primarily react to whether the data confirms persistent inflationary pressure.

As for the pound, today's agenda is limited to the Confederation of British Industry's balance of industrial orders report. This indicator is based on surveys of manufacturing companies. It reflects the difference between the increasing and decreasing number of orders, thus serving as an early indicator of the state of the industry. However, it is significantly less important than reports on inflation, the labor market, or GDP, which truly govern expectations regarding the Bank of England's rate, so we do not expect a strong reaction from the British currency.

Only a significant deviation from economists' forecasts in a negative direction could exert pressure on the GBP/USD pair. If the orders data disappoints, it will undermine confidence in the industry's resilience and weigh on the pound. At the same time, results in line with expectations will pass almost unnoticed by the market.

If the data aligns with economists' expectations, it is better to act based on the Mean Reversion strategy. If the data is significantly above or below economists' expectations, it is best to use the Momentum strategy.