Due to the sharp decline in natural gas prices, the strategy is to remain optimistic with the EUR/USD pair during the day, but only before the release of inflation data from the Eurozone. However, high inflation in Germany could reduce the upward momentum of the euro. Attention should be paid to buy opportunities within the short wave range.

EUR/USD Trading Strategy Amid Eurozone Inflation Data

Considering that US bond yields are rebounding, this is not favorable for gold. However, the decline in US stocks benefits gold. Therefore, the price of gold remains uncertain, but the outlook for the day is still slightly bullish. The ISM manufacturing data tonight will be crucial for gold; if it exceeds 49, both the US dollar and US stocks may rebound, exerting reversal pressure on gold.

Gold Price Outlook Amid Rising US Bond Yields and Stock Market Decline

Although the U.S. dollar's decline fueled a sharp rebound in U.S. equities, two key "sentiment indicators"—Tesla and the crypto market—quickly retreated after a brief surge. This phenomenon may suggest that market exuberance is gradually cooling post-Quadruple Witching Day, especially as the Christmas season approaches. Trump's first legal defeat has further dampened some optimistic expectations, pressuring the tech sector while potentially benefiting traditional sectors. A short-term trading strategy could involve a bearish view on the Nasdaq index while monitoring the Dow Jones for reversal opportunities after its longest losing streak.

Market Sentiment Cooling Down After Quadruple Witching Day

Since there is no news of a new round of stimulus policies at the moment, the opening performance of the Chinese stock market may not be optimistic. If a downward breakout occurs, it could drag the commodities market down as well. Therefore, one can align with the A-share market opening time to short crude oil or gold upon a breakout.

Market Strategy Amid Chinese Stock Market Uncertainty

Last Friday, the euro led, while the yen and pound lagged, making them ideal for intraday strength-weakness pair trading. With global PMI data due tonight, EUR/GBP is bullish for the Asian session, while EUR/JPY requires caution due to Japanese market volatility.

Germany’s PMI is expected to outperform the UK’s, supporting a bullish EUR/GBP trend. However, unexpected results could trigger turbulence, though bullish trades on EUR/GBP or EUR/JPY still show strong potential.

Looking forward to seeing how tonight’s PMI data impacts the EUR/GBP pair

Although yesterday's speech by the governor of Canada's key oil province triggered a sharp rise in crude oil prices, it could intensify US-Canada trade tensions, increasing the likelihood of a trade war. This would be unfavorable for global commodities as a whole. Coupled with the negative impact of the IEA's monthly report, crude oil may give back the gains from the speech during the day.

Crude Oil Faces Pullback Amid US-Canada Trade Tensions and IEA Report Pressure

The European Central Bank (ECB) is also about to announce its interest rate decision, with a general expectation of a 25-basis-point rate cut. However, since some ECB Governing Council members have previously expressed concerns about Trump’s tariffs, there are traders betting that the ECB might take a precautionary step with a 50-basis-point rate cut. During the day, the euro could be considered for a follow-up bullish strategy against the relatively weaker yen.

ECB Rate Decision Looms: Markets Eye 25bp Cut, Speculation of 50bp Action Grows

It is important to note that U.S. Treasury yields spiked at the market open on Sunday following President Trump's statement that he has no plans to replace Federal Reserve Chairman Jerome Powell. This also led to a simultaneous rise in the U.S. dollar. Although the momentum is not significant, caution is still advised when shorting the USD/JPY currency pair.

Short USD/JPY

Tonight's U.S. Nonfarm Payrolls data is crucial. If the figure falls below 100,000, gold prices may find support around the 2600 level and see a short-term rise. Conversely, if the figure exceeds 200,000, gold prices might break through the 2600 level and continue to decline.

Key Impact of U.S. Nonfarm Payrolls on Gold Prices

Yesterday’s German inflation rate fell short of expectations, but the euro only experienced a brief dip before rebounding. This reflects the oversold condition of the euro, as mentioned previously, with stronger-than-expected support at the bottom. Given that France’s budget crisis has lowered market expectations for French data, a CPI reading above expectations could trigger a sharp rise in the euro, similar to the yen’s surge this morning.

However, attention should also be paid to Italy’s inflation performance. If Italy’s inflation meets or exceeds expectations, it will also benefit the euro. The key scenario to watch is when inflation data from Germany, France, and Italy show mixed results. In that case, only the overall eurozone data might drive a breakthrough for the euro.

Euro's Resilience Amid Inflation Data Fluctuations

Considering the rebound of gold prices after the ceasefire between Lebanon and Israel, the risk of escalation of the war between Russia and Ukraine, and the fact that the reverse Trump deal is beneficial to the commodity market, the collective rise of Chinese stock market and metal prices today, etc., coupled with the formation of a bottom on the technical side, gold prices may rise in the short term.

Short-term XAU/USD

Over the weekend, Ukrainian President Zelensky said there was a possibility of a ceasefire with Russia by 2025, while Israel agreed in principle to a ceasefire with Lebanon. While the word “in principle” is not a sure thing for a ceasefire, it could ease market concerns, which could be unfavorable for gold prices. However, news that OPEC is extending its production cuts is still good for oil prices. Don’t sell too soon before WTI hits a high of $72.

May Chen

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Looking forward to seeing how tonight’s PMI data impacts the EUR/GBP pair

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