Binary Bet of the Week: Dollar Pushes Euro To New Lows

By Dave Evans of Binary.com

This week has been dominated by two key events. First up was the latest ECB meeting on Thursday where Mario Draghi was expected to detail the launch of Europe’s first Quantitative Easing programme. The Italian delivered again as expected with some of the details leading to further pressure on the euro, especially now the theoretical purchase programme is almost a physical reality.

Then on Friday we had a firecracker of a US Non Farm Payroll report. Payrolls were expected to come in at +240k, but gains smashed through this level to +295k, with the unemployment rate dropping to just 5.5%. The news sent the dollar index rocketing higher as traders bet on an early rate hike this year in the US. The dollar has quickly overcome its mid-February pause.

US Dollar Index

The stock market hated the news of course as higher rates make equities slightly less appealing, with higher borrowing costs starting to deleverage this (relatively) red hot US economy.

S&P 500 Daily Chart

The euro is continuing to act as a mirror of the dollar index, but there is an exaggerated quality to the sell off on Friday as many traders waited until the NFP result before getting behind their euro shorts on the back of Thursday’s ECB meeting. As such, the euro is gathering more momentum as traders play catch up.

EUR/ USD: Daily Chart

The euro is not alone in selling off on the back of the payroll results, but it certainly is coming in for some isolated selling pressure as evidenced by the drop not just in the EUR/ USD, but also in the EUR/ GBP.

EUR/ GBP Daily Chart

The big question is whether the euro has further to drop – and the answer has to be “yes”. Greece barely papered over the cracks in order to get a deal done with the Troika and the real negotiations over its long-term future are still yet to be settled. Add to this the unknown surrounding the impact of the ECB’s QE programme and the ongoing crisis in Ukraine, and you have plenty of reasons to bet on a euro decline.

A good way to play this situation is a LOWER trade predicting that the EUR/ USD will close below 1.0800 in 35 days time could return 142% if successful. Or put another way, betting that the EUR/ USD will drop further and close below 1.0800 on the 10th of April could return £24.17 for every £10 put at risk.

Gunning For Gold

There is one market out-pacing the euro and that is gold. The precious metal is in a period of poor seasonality with below average returns historically during the first half of the year and especially poor returns leading up to April. Gold’s best returns are around the Indian gold buying season which kicks off around September, with below average returns historically outside of this cycle.

Gold Daily Chart

Seasonality alone is not enough to base a trade on, but considering the strength of the US dollar index and indications that the current down swing is not yet heavily over bought, we could have a recipe for further down side.

A good way to play this is a LOWER trade predicting that gold will close below $1125 in 55 days time for a potential return of 293%. Or put another way, betting that gold will drop and close below $1125 on the 30th of April could return £39.24 for every £10 put at risk.  

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.