New EUR/USD, USD/JPY and gold ideas

Chris looks at EUR/USD, USD/JPY and spot gold today, giving you a wealth of food for thought.

EUR
Source: Bloomberg

I looked at EUR/USD shorts at $1.2714 on 22 October and the idea seems to be working well, with EUR/USD currently trading at $1.2505.

If in the trade, I would be moving stops down to $1.2640 and potentially even adding to short positions on a daily close below the 3 October low of $1.2501.

On the daily chart, the pair is not oversold if you look at the 14-day RSI or stochastic and, in my opinion, momentum should see the pair print a lower low this week. Naturally, fundamentals matter and, with the ECB meeting in play this Thursday, we could see higher volatility in the pair. However, this is not my central case and thus short EUR/NZD trades could take advantage of low implied volatility. No additional measures are likely to be announced at the meeting, but any hints the central bank could have strong discussions around government bond purchases (like we have seen in the US over the years) and EUR could come under pressure.

On the USD side of the equation, we get manufacturing and services ISM numbers in the US, with Friday’s payrolls report always closely watched. As it stands, the market expects 235,000 jobs to be created and the unemployment rate to remain at 5.9%. Keep an eye on the average hourly wages as well (expected to increase 2.1% on the year).

USD/JPY

I have written in more depth in the morning briefing about Fridays BoJ actions, but my preference is to be short EUR/USD or long AUD/JPY rather than long USD/JPY. My long-term target for USD/JPY is ¥119.30 (this is based off wave equality), but despite fundamentals for both the USD and JPY suggestive of a move higher, I am cautious and would be fading moves into ¥113.00, with stops at ¥113.30 for a move to ¥112.15.

Spot gold

Spot gold has broken below the $1180 level, which since June 2013 has acted as a floor. The correlation between gold and USD/JPY is elevated at present, so if gold is going to see further downside, we would need to see USD/JPY move towards ¥113.00.

There seems little reason to be long gold at present and this is being reflected in the price action. The Fed has stopped QE but global equities are seeing fresh highs. The USD looks like it will continue rallying over the short, medium and long term and there are very low, if not falling inflation expectations.

Watch how gold trades if we see a move back to the $1180, as a retest and rejection could bring in a new wave of sellers.

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