Yesterday deserves a closer look because it was two-act and clearly shows how the market works. First, the dollar rose sharply on the US producer price report, which came in above forecasts for both the headline and core measures. The increase was 0.4 percent for August versus 0.1 percent a month earlier, and on an annual basis prices added 5.4 percent. The producer price index shows inflation at the factory stage, i.e., before the store, and the market interpreted that acceleration as a significant argument for a Federal Reserve rate hike at the September 15–16 meeting. That outcome is now considered more likely than not.

Christine Lagarde staged the second act yesterday. The European Central Bank raised the deposit rate to 2.5 percent, but her words after the decision mattered more. The head of the central bank warned that more expensive energy will gradually flow into core inflation and food prices, and the headline measure will remain above target until the first half of 2027. Inflation in the eurozone is already stuck above 3 percent. The market read all this as a direct hint that the tightening cycle is not over and the next step could come as early as next month. The euro recouped most of its decline because expectations of further hikes outweighed the initial scare from US data.

Today the European calendar is empty. Only Italy's quarterly unemployment level is released, and this indicator is frankly secondary. It speaks to the state of the Italian labor market but is published infrequently and is not comparable in importance to pan-European inflation or GDP reports, so one should not expect an independent impulse for the euro from it.

All attention is on something else. During the US session, the US consumer inflation report is released, and this is the main event of the day — possibly the week. After yesterday's PPI, the question is direct: has the price rise at the production level reached retail prices? Before such a publication, no one risks much, so volatility may noticeably decline until the data are out.

Momentum

For the euro, on the upside I'm watching 1.1617. A break of that level opens the road to 1.1631 and then to 1.1653. This scenario works if CPI is weak, when the market decides the inflation wave is fading and continues to price in the ECB's recent promises. On the downside, the reference is 1.1600; a break leads to 1.1584 and 1.1568. I consider this option more likely if consumer prices confirm the picture drawn by yesterday's producer report. I'll repeat what I said recently: don't enter on the first candle after an inflation data release. Reactions come in waves; the first move often reverses within minutes, and spreads widen then. Wait for price confirmation beyond the level rather than trying to catch the start.

For the pound, on the upside, 1.3531 is in play with targets 1.3565 and 1.3596; on the downside, 1.3495 with movement toward 1.3474 and 1.3457. The pound may react strongly to GDP data, so moves promise to be fairly large.

Mean Reversion

For the euro, the upper boundary is 1.1624. I consider short positions only after an attempt to hold above this mark fails and the price returns below the level. Before the US release, this scenario is quite workable because the market is standing still and any moves beyond the range boundaries tend to be short and hollow. The lower reference is 1.1596, worked out by the opposite logic — I look for long positions after an unsuccessful breakdown to the downside. Note that it sits almost flush with the breakout point 1.1600, and this is precisely the zone where what matters is not the touch itself but the price's behavior afterward.

For the pound, the upper benchmark is 1.3522. Here I'm waiting for a situation where the pair looks higher; there are no buyers to continue, and the price falls back. This return gives reason to look for short positions, not the exit itself to the top. The level lies below the breakout point 1.3531, which is convenient because the two scenarios do not conflict. While the pound drifts below 1.3531, the return pattern remains the main working scheme for the pair.

The lower boundary for the pound is 1.3488, slightly below the breakout level of 1.3495. The logic is mirrored. If price drops to that mark, but sellers don't find continuation, and the pair returns upward, I look for longs aiming for a move back into the body of the range. If the pound consolidates below, the return scenario is canceled, and the breakout model comes into play with targets 1.3474 and 1.3457. In both cases, I place the stop beyond the extreme point of the breakout, not behind the nearest round number.