Yesterday the dollar again beat both currencies, with the pound suffering noticeably more than the euro — the pair lost over 100 pips, while EUR/USD fell more moderately despite a generally strong European backdrop.

For the eurozone, the data yesterday were good: the preliminary composite PMI for September rose to 53.1 from 52.0 in August, a 41-month high, with Germany and France showing the best growth rates in a long time. Nevertheless, this did not strengthen the euro — the market focused on much stronger US figures, and positive eurozone news simply got lost against that background.

In the UK, the data, by contrast, disappointed: the country's PMI fell to 51.7 from 52.5, retreating to a three-month low, and this was the direct cause of the sharp pound sell-off — the more than 100-pip drop mentioned above.

From the US, a very strong block of data was released yesterday: the composite PMI jumped to 58.4 from 56.0 in August — a 62-month high and the fastest growth in five years. This sharply contrasts with the situation in the eurozone and Britain and explains why the dollar strengthened against both currencies at once yesterday. Right now the gap between the three economies is one of the widest in a long time: the US is accelerating, the eurozone is growing moderately, and Britain is slowing — and this three-way divergence, in my view, will remain the market's key theme in the coming days.

Today's focus will be the German IFO business climate index, which the market expects to rise to 89 points, as well as speeches by three Federal Reserve officials — Tom Barkin, Beth Hammack and John Williams. Their rhetoric, I believe, will determine dollar dynamics through the end of the week far more than the German index itself. For the pound, a CBI retail sales report will be released in the first half of the day and Sarah Breeden, a member of the Bank of England's Financial Policy Committee, will speak. Neither event is likely to materially change the balance of power: CBI retail sales are traditionally viewed as a secondary indicator, and a speech by a member of the financial stability committee, rather than the monetary policy committee, rarely carries significant rate signals.

Nevertheless, after such a large sell-off yesterday, there is a chance of a small technical correction in the pound — if retail sales unexpectedly beat expectations, GBP/USD could get a modest reason to bounce, although I would not call it a trend reversal, more a natural pause before the market refocuses on weightier factors such as further Fed rhetoric.

Momentum

For the euro, the key level above is 1.1392, a breakout of which could push the pair to 1.1414 and then to 1.1433. For that scenario, we would need either a failure in today's Fed speakers' rhetoric or an unexpectedly weak German IFO that the market reads as a reason to doubt the eurozone's resilience. I consider a break below 1.1373, with targets at 1.1355 and 1.1335, a much more probable scenario, since the growth gap between the US and the eurozone continues to work exclusively in the dollar's favor.

For the pound, the upside mark is 1.3252, beyond which the pair can reach 1.3284 and then 1.3313 — this is precisely the scenario where unexpectedly strong CBI retail sales give the pair a reason for a short correction. A break of 1.3220 down with targets at 1.3189 and 1.3150 still looks more likely given yesterday's sharp weakness and the UK economy's lag versus the US and even the eurozone.

Mean Reversion

For the euro, I'm watching the upper boundary at 1.1394. The logic is simple: the pair tries to hold above, but buyers for continuation are absent, and the price slides back — a sell signal. While the PMI gap between the US and the eurozone remains so pronounced, this scenario looks quite appropriate. The lower reference at 1.1369 works by the opposite logic, but approach buying here cautiously: one strong European PMI is not enough to flip the overall market bias in favor of the euro, so targets for such a trade should be modest.

For the pound, the upper boundary is 1.3256. The same pullback scheme applies, but today, after yesterday's sharp sell-off, the chance of a technical correction is somewhat higher than usual — especially if CBI retail sales surprise on the upside. The lower reference at 1.3219 suggests buying the rebound after a false break lower; however, trading it requires caution — the wider backdrop of the UK's economic underperformance does not favor a sustainable reversal, and any bounce here should be treated as a purely technical episode.