Euro and Pound Soar While the Dollar Plunges — and Here's Why

Weak U.S. Nonfarm Payrolls data for July turned out to be far worse than economists had forecast. Traders, disappointed by the slowdown in U.S. economic growth, began actively offloading dollar-denominated assets, putting additional pressure on the national currency. The euro, on the other hand, posted solid gains, fueled by expectations of a more hawkish policy stance from the European Central Bank. In the short term, currency pair dynamics will likely be driven by macroeconomic data and central bank decisions. Traders will closely monitor inflation reports, employment figures, and statements from Federal Reserve and ECB officials.

In the longer term, however, the strength of the dollar hasn't gone anywhere. The interest rate differential will continue to weigh on risk assets, making the dollar more attractive.

Today's calendar includes the eurozone's Sentix Investor Confidence Index. A bullish impulse triggered by this release could further support the euro against the U.S. dollar and other major currencies. However, traders should remember that no single indicator — even one as important as the Sentix index — serves as a standalone barometer of economic health. A comprehensive view of macroeconomic data, political risks, and the geopolitical landscape is essential. For example, if the positive Sentix reading is accompanied by negative news on eurozone GDP growth prospects, the bullish impulse could quickly fade.

No economic data is scheduled for release in the UK today, so the trend toward pound strength is likely to continue.

If the data aligns with economists' expectations, it is best to act using a Mean Reversion strategy. If the data significantly deviates (either above or below) from expectations, a Momentum strategy is preferable.

Momentum Strategy (Breakout):

EUR/USD

Buy on a breakout above 1.1590, targeting a rise toward 1.1630 and 1.1665.

Sell on a breakout below 1.1550, targeting a decline toward 1.1518 and 1.1479.

GBP/USD

Buy on a breakout above 1.3304, targeting a rise toward 1.3342 and 1.3383.

Sell on a breakout below 1.3255, targeting a decline toward 1.3217 and 1.3179.

USD/JPY

Buy on a breakout above 147.90, targeting a rise toward 148.25 and 148.50.

Sell on a breakout below 147.55, targeting a decline toward 147.32 and 146.85.

Mean Reversion Strategy (Pullbacks):

EUR/USD

Look to sell after a failed breakout above 1.1604, once the price returns below that level.

Look to buy after a failed breakout below 1.1542, once the price returns above that level.

GBP/USD

Look to sell after a failed breakout above 1.3304, once the price returns below that level.

Look to buy after a failed breakout below 1.3245, once the price returns above that level.

AUD/USD

Look to sell after a failed breakout above 0.6497, once the price returns below that level.

Look to buy after a failed breakout below 0.6466, once the price returns above that level.

USD/CAD

Look to sell after a failed breakout above 1.3800, once the price returns below that level.

Look to buy after a failed breakout below 1.3757, once the price returns above that level.