Last week, we analyzed the recent strong move of the US dollar due to a short squeeze on the future markets. The ‘greenback’ increased its purchasing power against most currencies, especially the euro. We noticed a crucial technical support level at 1.42. Today, we are trading around 1.41, which paves the way for further euro declines towards the next support stage at 1.35 in the coming period.
If we look at the macro-agenda over the next weeks, there’ll be more than enough occasions to increase the downward pressure on the euro. For instance, this Sunday we have regional elections in Germany as well as in Spain, 2 giants within the European Union. As we saw in some recent European elections, the outcome can be very unexpected and even unpleasant for market conditions.
Furthermore, we’ll be receiving the newest results from the European bank stress tests… but let’s face it, these have shown to be one big farce, so we’ll not bother that much. What were are most anxious about is the end of QE2.
If the ‘black swans’ stay away and no market crashes occur, there won’t be an extension of the Fed’s quantitative easing at the end of June. This will probably lead the USD higher, i.e. the euro lower. Mind you: we don’t expect the absence of QE’s to last that long, maybe one or two quarters, as the problems in the US haven’t been solved, on the contrary, they are getting worse by the day.
Until QE3 comes around, we’ll get new and unexpected opportunities like we mentioned last week. The first odds are occurring in gold, with prices in euro trading in record territory. For now, we see little-to-none downside for gold in dollar terms, as participants are stepping in with every price dip. Investors are clearly worried about the stability of the global financial system, for which gold offers the ultimate safe haven.
This leads to gold trading still at record levels, not so much in dollars, but in euro!
Gold ticked 1,060 euro per oz in the recent days, barely 10 euro below the all-time high for the price of the yellow metal in Europe. For us, it’s only a matter of time to see gold trading at new records in the EU.
If we take our EUR/USD assumptions of 1.3-to-1.35, with gold trading sideways around $1,500/ounce, this works out to a Target Price range for Gold from 1,110 to 1,150 euro per ounce. On top of that, we wouldn’t be very surprised to see gold climb further in dollar terms, but not at the recent pace: $1,650/ounce should be feasible in the coming months. Again grabbing our Eurodollar assumptions, we are putting a TP of €1,250 per oz on gold: +20%!
Even with all the commotion for commodities in general, and precious metals specifically, there are still profits to be made for alert investors. As for us, we’ll take a twenty percent profit anytime in the current market environment!