by Dave Evans of binary.com
Another False Dawn For The Euro?
The European economy appeared to briefly flicker back to life on Thursday as Eurozone PMI data came in stronger than expected. More importantly, data from Europe’s powerhouse Germany impressed, especially in the manufacturing sector.
The news came as welcome relief after days of pressure surrounding Portugal’s beleaguered Banco Espirito Santo. The rally was relatively short lived though as Friday saw the release of below par German Ifo business climate numbers. Not only did these numbers fall short of expectations, they fell to their lowest level since October 2013 – the third straight month of decline.
EUR/ USD chart
The EUR/ USD has been in decline since the beginning of May, with the most recent down swing starting at the beginning of the month.
This decline has moved in contrast with the surging US dollar as represented by the dollar index below.
This decline has been in contrast with the surging US dollar, as represented by the dollar index. The dollar reached its highest levels of 2014 on Friday, though now has to prove it can break through a tricky overhead support level.
The euro and dollar’s divergence underline the opposing interest rate trajectories of the two regions. The US is slowly easing towards upping interest rates, while the Eurozone is still in ‘whatever it takes’ mode.
The euro’s weakness is not simply due to dollar strength, as shown by the continued weakness in the EUR/ GBP. Like, the Eurozone and US, the Eurozone and the UK are still on different interest rate trajectories. While Thursday’s European trading data offered some temporary relief, but this is likely to prove short lived as the underlying trend has some way to go.
Indeed, the chart of the EUR/ GBP above shows how the sellers have stepped in quickly to reverse any strength shown by the euro. Most moves higher have been reversed, or at least stalled within 4-5 sessions.
As such, Thursday’s rally could offer another opportunity to bet on the short side.
A good way to play this is a LOWER trade on the EUR/ GBP, predicting that the EUR/ GBP will close below 0.7900 in 7 days time could return 205%. Or put another way – betting that the EUR/ GBP will be below 0.7900 at the close on August 1st could return a net profit of £67.22 from a £100 stake.
Golden sell-off could have further to go
Gold saw some follow on selling this week with the short term lows currently acting as support. The chart below shows gold with its parabolic stop & reverse.
A large gap beneath the parabola can hint at a short term reversal and vice versa as represented by the green and blue lines respectively.
The current move lower, is about the same as the situation in April and late May. Those levels represented a very mild sell off in comparison to previous sell offs. The implication is that gold’s sell off is yet to reach extreme levels and we could see further downside over the next seven days, or at least that a rebound is unlikely with any significant force. This could change if we do get a big down day, but right now, betting on further down side could be the best way to play this.
A LOWER trade predicting that gold will close below $1,280 in 5 days time could return 212% if successful. Or put another way, betting that gold will be below $1,280 at the close on July 30th could return a net profit of £68.21 from a £100 stake.
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.