The EUR/USD came off its highs during the US trading session but the pair continues to show considerable strength, hinting that the euro rally is not over quite yet. Spot gold prices fell to their lowest level in over two months following the completion of a head and shoulders reversal pattern.
Near the end of the trading day, the EUR/USD was higher at 1.3640 after opening the day at 1.3593. The pair reached an intraday high of 1.3685. Spot gold prices were down sharply at $1334 from an opening day price of $1351. Spot crude oil prices were also sent lower, tumbling to $87.65 from $89.48. The Dow Jones Industrials Average moved higher to 11980.52 and is approaching the psychological 12000 level.
In afternoon trading, the EUR/USD was receiving strong bids above the 1.36 level as traders continue to buy the17-nation currency as expectations for rising European interest rates increase. Progress on the fiscal front is also bolstering the euro as the European Financial Stability Fund (EFSF) is expected to issue its first round of bonds this week.
A near term target for the EUR/USD may be the 61.8% Fib retracement level from the November to January downtrend. This price is located at 1.3745. Support looks to be the 100-day moving average line at 1.3540.
Spot gold was down sharply on the day as traders have been quick to sell the commodity given the threat of further tightening of monetary policy in China and the potential for a rise in European interest rates.
Traders should note the completion of a head and shoulders pattern on the spot gold daily chart. The left shoulder takes shape in mid-November with the head forming in early December at the all-time high of $1,431. The right shoulder formed in early January. A rising neckline can be found underneath the left and right shoulders. Estimating the price move from the reversal pattern brings a potential decline of $92 with a target at $1,265. This level coincides with the 61.8% Fibonacci retracement from the July low.