The morning brought a notable advantage for the dollar, with the euro affected the most. The single currency declined noticeably, while the pound remained considerably more stable and lost only slightly. The result was a situation in which the dollar was not so much strengthening on its own as benefiting from the weakness of its counterparts, with the weakness of the euro and pound stemming from different factors.
I will start with the euro because the most unusual development today occurred there. The eurozone manufacturing PMI was released in the morning. This is a survey of purchasing managers, and a reading above 50 indicates growth in the sector. The figure rose to 52.9 from 52.7 in August, marking the best result since May 2022. At the same time, new orders and output are growing at their fastest pace since the beginning of 2022, while companies are making the most optimistic plans for the year ahead since February. On a normal day, such data would give the euro a strong reason to rise. However, the market paid almost no attention to it. The reason lies in France, where the domestic political crisis has made the euro a convenient target for bets against Europe. Today, the government is presenting the 2027 budget, creating the risk of a new political confrontation and a potential resignation of the prime minister. Traders are currently less concerned with the state of the eurozone's manufacturing sector than with whether the bloc's second-largest economy will withstand another political shock. In my view, this represents a different level of concern because it affects confidence in the currency itself rather than in individual economic indicators. As long as the budget issue remains unresolved, I expect short positions in EUR/USD to accumulate, while any positive data from the eurozone will remain a secondary factor.
The situation with the pound is different and more subdued. The final reading of the UK's manufacturing PMI for September came in slightly below the preliminary estimate. The index rose to 51.9 from 51.7 in August, and the sector has now been growing for eleven consecutive months, but the market is primarily comparing the final reading with the preliminary estimate rather than focusing on the absolute figure. The downward revision became the main reason for caution. Interestingly, there was almost no reason for pessimism within the report itself. Output, new orders, and employment increased, delivery times lengthened, and only raw-material inventories declined. This creates a chain in which new orders support output, while higher output drives hiring. I think the pound's subdued reaction is explained precisely by the gap between the strong underlying picture and the downward revision. The market interprets the revision as a signal that the momentum was slightly weaker than initially reported and is cautiously pricing this in.
In the second half of the day, the ISM Manufacturing PMI for the United States will be released. This is also a survey of purchasing managers, but it covers US factories and is viewed as a quick snapshot of the state of the manufacturing sector. The indicator itself is relatively predictable: the sector is gradually recovering, and no major surprises are expected. Therefore, the figure itself is unlikely to become the main event of the day. More interesting will be the remarks from two FOMC members, the Federal Reserve committee responsible for setting interest rates. Jeffrey Schmid and Susan Collins will speak. Recent inflation and labor-market data do not indicate an urgent need for further policy tightening, and the market is waiting to see whether the speakers will confirm this or signal that the regulator is in no hurry to ease its stance. If their tone is dovish, the dollar will have a reason to weaken, allowing the euro and pound to recover. If, however, they make cautious remarks about persistent inflation risks, pressure on both pairs will return. In my view, this uncertainty surrounding interest rates, rather than the ISM figures themselves, will generate most of the market volatility through the end of the session.
MomentumMomentum is needed here, and today there are two potential sources: the French budget and the second half of the day, when US officials are scheduled to speak.
For the euro, the upward breakout level is 1.1307. A consolidation above it opens the way toward 1.1346 and then 1.1379. For this to happen, France must avoid adding further political uncertainty, while Schmid and Collins would need to maintain a dovish tone. This combination is rare, so I consider this scenario less likely. On the downside, 1.1260 is the key level. A consolidation below it would lead to 1.1214 and 1.1174, and this direction appears to be the main scenario to me because political pressure is already present, while positive economic data have failed to offset it. The distance between the two breakout levels is 47 points, which is a wide range. As long as the price remains within it, it is too early to trade the breakout.
For the pound, the upward trigger is 1.3223, with targets at 1.3265 and 1.3307. The pound has greater potential to rise than the euro because it is not facing a political crisis of comparable scale, while the underlying PMI data remained solid. However, the downward revision limits optimism, and without a dovish tone from the Federal Reserve, I would not expect a confident break above 1.3223. On the downside, the breakout level is 1.3180, with targets at 1.3137 and 1.3097. If cautious remarks from US officials put renewed pressure on dollar pairs, this scenario would be the first to develop. There are 43 pips between the two levels, giving the pound enough room to fluctuate before choosing a direction.
Mean ReversionHere I am trading false breakouts, and this approach looks reasonable before the US officials' remarks because the pound has few domestic catalysts today.
For the euro, I am watching 1.1303 on the upside. It is only four points below the breakout level of 1.1307, and a single test is not enough to distinguish a reversal from the beginning of a breakout. If the price touches 1.1303 and quickly returns below it, I would consider selling. If it moves above 1.1307 and consolidates there, that is a breakout, and I would not trade against it. I would place the stop above 1.1307 with a small buffer. The lower reference level of 1.1261 is even closer to the breakout level, as only one pip separates it from 1.1260. In practice, these two levels cannot be meaningfully distinguished on the chart, so I would not enter on the first test. I would wait for the candle to confirm the direction. If the price moves below 1.1260, quickly returns above it, and remains there, I would consider buying with a stop below the low of the false breakout. If it consolidates below the level, that is a breakout toward 1.1214, and buying against it would not be advisable. Given the French political backdrop, I expect a breakout rather than a reversal, and I consider a mean-reversion trade at the lower level risky.
For the pound, the upper reference level of 1.3244 lies between the breakout level of 1.3223 and the first target of 1.3265, exactly halfway between them, with 21 points to each level. This is important. If the breakout above 1.3223 occurs, the price will pass through this level on its way to the target. If, however, it reaches 1.3244, fails to move higher, and returns, this would indicate that the momentum has weakened halfway to the target, and I would look for selling opportunities. It would be logical to place the stop above 1.3265 because reaching that level would confirm the breakout. The risk would be wider than usual, so I would reduce the position size. The lower reference level of 1.3179 is one pip below the breakout level of 1.3180, creating a situation that mirrors the euro. If the price moves below the level, quickly returns above 1.3180, and consolidates there, I would consider buying with a stop below the low of the false breakout. If it remains below the level, that is a breakout toward 1.3137, and buying against it would not be advisable. Today's situation is supportive for the pound because it is not constrained by its own political crisis, but the downward PMI revision warrants caution, and comments from US officials could quickly push the price lower. Therefore, I consider the pound's mean-reversion scenarios viable until Schmid and Collins speak, after which I would switch to breakout strategies.