Two trades to watch: EUR/GBP, Gold

EUR/GBP falls ahead of PMIs

EURGBP is falling for a fourth consecutive day, dropping to levels last seen two years ago.

The Euro remains under pressure despite record high inflation. CPI in the region hit 5.8% YoY in February. However, fears of stagflation are hitting the common currency as the Russia conflict, together with soaring energy prices could limit growth.

The minutes from the February ECB meeting are due, but could well be considered out of date given the latest jump in inflation and Russia’s invasion into Ukraine.

Inflation at wholesale level will shed more light on the inflation story in the eurozone with the producer price index expected to rise 27% YoY.

Eurozone composite PMI data for February is expected to confirm the initial reading of 55.8. 

UK composite PMI is expected to confirm the initial reading of 60.2, up from 54.2.

Where next for EUR/GBP?

The pair trades within a falling channel dating back to late September. The price has been extending its decline from 0.84 struck last week, falling below the 50 sma to test 0.8282 the 2022 low and a level last seen in February 2020.

The RSI points to further downside. However, sellers need to break meaningfully below 0.8282 to bring 0.8250 in focus, the lower band on the falling channel. A break below here could open the door to 0.82.

On the upside, resistance at 0.83 would need to be overcome, the February 24 low, ahead of 0.8345 the February 14 low, exposing the 50 sma at 0.8365. It would take a move above 0.84 the February 25 high to form a higher.

Gold rises after Powell inspired selloff

Gold has seen a choppy week so far amid conflicting forces as work. On the one hand, safe haven flows have been boosting demand for the precious metal. On the other, US dollar strength has acted in favour of the bears.

Gold fell yesterday 0.88% on US dollar strength after Fed Chair Powell’s testimony before congress boosted the buck. Powell as good as confirmed a 25 basis point rate hike and left the door open for more hikes across the year.

News of a potential ceasefire in Ukraine, to be discussed in the coming days also weighed on demand for Gold.

Today, the precious metal is edging higher, as hostilities in Ukraine continue. Risk sentiment will be driven by Russia, Ukraine headlines.

US ISM non-manufacturing and jobless claims will be in focus, in addition to another testimony from Fed Powell. More talk of rate hikes could bring Gold back under pressure.

Where next for Gold price?

Gold trades within a rising channel dating back to early February. The RSI is supportive of further upside whilst it remains out of overbought territory. Buyers will need to break above $1950 which is proving to be a tough nut to crack, ahead of $1975 the year to date high.

However, it should be noted that the price has extended a long way from the 50 & 100 sma, which could prompt a correction . Support can be seen at 1920 the lower band of the rising channel ahead of $1915 the February 22 high and yesterday’s low. It would take a move below $1878 to change the bias to bearish.