[Pimpllus]

Something isn’t right here.
Gold and EURUSD have generally had a great relationship but the rally seen yesterday in EURUSD seems stretched now according to the overlay above.

One of the following three things must happen:
1. The rally in EURUSD runs out of steam and the pair starts to turn down in line with where other markets (particularly gold) suggest it should be.
2. Gold rallies to where EURUSD suggests it should be.
3. The relationship between Gold and EURUSD breaks down and another type of dynamic takes over.

Why do we think number 1 will happen over the coming days?

While the relationship between Gold and EURUSD has generally been good, other markets are also suggesting that the EURUSD should be lower. Equities did not bounce yesterday and yields also fell. Independent analyses on these charts continue to suggest that we are still likely to see lower stocks and lower yields going forward. We have a head and shoulders patterns on U.S. 10 year and 30 year yields and equity indices have breached support levels. Further risk aversion would indicate USD (and JPY) buying.

The head and shoulders pattern on Gold still targets sub $900 (see below)
It is also too soon to suggest that a strong market relationship breaks down following one day’s price action. Near term resistance levels on EURUSD are 1.4178, 1.42 (76.4% Fibonacci) and 1.4230 (trend resistance)

Gold


Trend support from the October low has been breached and the head and shoulders still targets sub $900.