EUR/USD, Gold forecasts: Two trades to watch

EUR/USD looks to 1.10 with PMI data in focus

 

• Eurozone composite PMI to rise to 54.1
• US shrugs off hawkish comments from Fed official Mester
• EURUSD rises towards 1.10

EUR/USD is pushing higher for a third straight day, rising above 1.0950 at around a 2-month high.

The pair is finding support from ECB-Fed divergence bets after weak US data yesterday raised concerns of a recession and despite hawkish comments from the Fed’s Loretta Mester. The Cleveland Fed President said that the Fed would need to raise interest rates above 5% and keep them there for some time to tame inflation. The market is pricing in a 60% probability of a 25 bps rate hike in May and several rate cuts by the end of the year!

The euro is rising after a jump in German factory orders, which rose 4.8% MoM in February, up from 0.5% in January and well ahead of forecasts.

Attention is now on the eurozone composite PMI data, which is expected to confirm the preliminary 54.1 level in March, up from 52 in February. Strong business activity growth supports the view that the ECB will continue to raise rates.

ECB Chief Economist Philip Lane is due to speak later.

In the US session, ISM services PMI data is due, together with ADP private payrolls.

Where next for EUR/USD?

 

Having risen above 1.0925 EURUSD looks to test 1.10. The pair trades firmly above the 50, 100 & 200 sma and the RSI is supportive of further upside while it remains out of overbought territory.

It would take a break below 1.08 the April low to alter the bullish outlook and form a lower low.

 

Gold to record highs?

 

• Weaker USD on recession fears
• US ADP payrolls & ISM non-manufacturing PMI due
• Gold breaks out of pennant formation to 2025

The precious metal has risen above 2010 as it rises toward 2025 and a fresh 13-month high boosted by broad USD weakness and bets of a less hawkish Federal Reserve.

US JOLTS job openings falling below 10 million for the first time in almost 2 years, combined with a second straight month of falling US factory orders raised concerns over a recession in the US, pulling the USD and stocks lower while boosting the USD-denominated, safe haven gold.

The market is increasingly betting that the Fed will be cutting rates by the end of the year, even as Fed speakers remain relatively hawkish.

Today attention is on the ISM services PMI, which is expected to remain strong at 54.5 in March, down from 55.1.

ADP private payrolls are expected to be a solid 200k, down from 242k in February, but still a solid reading.

Disappointing US data could see investors re-pricing Fed expectations, pulling the USD lower, and triggering further gains in Gold.

Where next for Gold prices?

Gold broke out of the pennant formation yesterday at 1985, closing above 2010,  the 2023 high. This combined with the bullish RSI, supports further upside while the RSI remains out of overbought territory.

Buyers will look towards 2050 the psychological level, 2070 last year's high and 2075, the all-time high hit in July 2020..

Immediate support can be seen at 2010, with a break below here opening the door to 2000 the psychological level. Further support can be seen at 1985 the falling trendline from the pennant formation.