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How to Approach EUR/USD and Gold at Fresh Highs

How to Approach EUR/USD and Gold at Fresh Highs

2016-05-02 13:38:00
James Stanley, Strategist
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Talking Points:

- There is considerable talk about ‘currency market volatility’ in the major press today after a big week of moves; but much of this volatility can be reduced back to a strong movement lower in the US Dollar, and that has created reverberations in other markets.

- The recent extension of USD weakness has brought many related markets up to new highs, but with a heavy batch of USD data this week, the question is whether these US prints will be bad enough to inspire even further USD-weakness. NFP is on Friday, so if you want to brush up risk management ahead of time, please check out our Traits of Successful Traders research.

- If you’re looking for trading ideas, check out our Trading Guides. And if you want something more short-term in nature, check out our SSI indicator.

Last week brought a plethora of new data points for markets to work with, and the big takeaway was an outsized move of weakness in the US Dollar. This outsized move in the Greenback has created outsized moves elsewhere across the currency spectrum, and can even be seen in some commodities such as Gold.

The big question as we approach another week of heavier-than-normal data is one of sustainability; as in, do these USD-weakness trends have room to run? The shape of US data this week could create aggressive reversals, as we get high-importance announcements on Monday, Wednesday and again on Friday. And on Friday we get the most recent Non-Farm Payrolls report, which given the incredible scope of recent USD weakness, could provoke considerable volatility around the release. Below, we take a look at three of the more prominent USD-related markets to get an idea for how a trader might be able to approach another data-heavy week.

EUR/USD

Probably one of the more noteworthy moves on the early morning is the EUR/USD run to new highs at 1.1500. The last time EUR/USD touched 1.1500 was October 15th of last year, just before the European Central Bank pledged to ‘re-examine’ their QE-policy at their December meeting; which, of course, was largely inferred to mean that the ECB was going to increase their QE-outlay. And while we didn’t get that announcement in December, we eventually got more than many had bargained for in March.

But since tagging that 1.1500 psychological level, EUR/USD has seen a bit of softness.

We had discussed EUR/USD a couple of weeks ago, pointing to the long-term Fibonacci support level at the 1.1212 level in the pair. Since then, that price has come in as support as EUR/USD jumped higher each day last week; gapping higher to start this week and leaving near-term price action rather far away from any near-by support levels.

Traders would likely want to approach continuation setups here with caution, as the recently broken resistance at 1.1418 had provided numerous tests before finally giving way to surging prices. Traders that want to treat this recent move in EUR/USD aggressively could potentially use this prior level of resistance as new support. For those that want to treat a little more conservatively, they can investigate support at a slightly deeper price of 1.1291, as this is the 76.4% retracement of the ‘QE-move’ in the Euro (May of 2014 high to the March 2015 low).

How to Approach EUR/USD and Gold at Fresh Highs

Created with Marketscope/Trading Station II; prepared by James Stanley

Gold

The Gold market has also seen a new psychological level come into play with the recent surge in prices. In Gold, the level of interest is at $1,300.00, which also has two long-term Fibonacci levels within $7.50 of this price.

Again, traders are likely going to want to move forward with caution as prices broke out to open a heavy news week in which considerable US data is going to be unleashed. There are potential support levels in Gold at $1,283.82, $1,270 and $1,251.74. We discussed this support structure just a couple of weeks ago, and these levels can still be operable for re-entry approaches.

How to Approach EUR/USD and Gold at Fresh Highs

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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