Two Trades to Watch: EUR/USD, Gold

EUR/USD rises ahead of German IFO business climate data & FOMC minutes

• Strong eurozone PMIs support a hawkish ECB
• German IFO to improve to 91.2 up from 90.2
• EUR/USD bears could have the upper hand

EUR/USD Is edging higher after two days of losses investors weigh up stronger-than-expected data and look ahead to the release of the FOMC minutes.

The eurozone PMI say that business activity create its fastest pace in nine months in February, a much faster rebound than expected. The composite PMI jumped to 52.3 up from 50.3, highlighting resilience in the eurozone economy as it rebounds from last year’s energy crisis.

German ZEW economic sentiment was also stronger than expected, rising for a fifth straight month to 28.1, well ahead of the 22 forecast.

The upbeat data supports the view that the ECB should keep raising interest rates.

Today German inflation data confirmed the initial reading, with inflation cooling to 9.2% YoY in January, down from 9.6%.

German IFO business climate data is also due and is expected to improve to 91.2 up from 90.2. Strong data could further reinforce hawkish ECB bets, boosting the EUR.

Meanwhile, the US is tracking treasury yields lower ahead of the Fed minutes, which will be scrutinized for clues over the Fed’s future path for rate hikes.

Where next for the EUR/USD?

After breaking out the rising wedge, EUR/US has dropped. A close below the 50 sma, combined with the RSI below 50 keeps sellers hopeful of further downside.

Bears look for a break below 1.0610, the February low to extend the bearish trend towards 1.0480, the 2023 low.

Meanwhile, buyers need to rise above the 50 sma at 1.0740 to rise towards 1.08, last week’s high.

 

Gold awaits the Fed minutes

• Rebounding US PMIs fuel hawkish Fed bets
• FOMC minutes could be considered outdated
• Gold consolidates, sellers could have the advantage

Gold prices are holding steady after losses in the previous session following stronger than expected US data open and as investors look ahead to the release of the minutes from the February Federal Reserve meeting.

Yesterday’s update US PMI data, which showed that US business activity rebounded to an 8-month high in February, fueled hawkish fed bets.

All eyes are now on the FOMC minutes, which will be scrutinised for clues as to whether policymakers are looking to return 250 basis point rate hikes.

The market is currently pricing in 25 basis point rate hikes in the March and May meetings. However, there are growing calls that the Fed could keep raising interest rates higher and for longer after a series of strong macro data earlier this month pointed to the US economy holding up better than expected and inflation proved to be stickier than expected.

It is worth noting that the February meeting took place before the release of the blowout jobs report. Therefore, the minutes could be less hawkish than recent Federal Reserve policymakers’ speeches. With this in mind, the market’s reaction could be limited if the market considers the minutes to be outdated.

Where next for Gold prices?

After breaking below the 50 sma, Gold is trading in a consolidative manner, although bears could have the upper hand with the RSI below 50.

Support at 1825 the January 5 low still holds as buyers keep the price above 1840. A break below here and 1825 could open the door to 1819, the 2023 low.

On the flip side, should buyers rise above 1850, the round number, the 50 sma at 1864, is exposed. A rise above 1870, last week’s high, would create a higher high.