USDJPY break out spells trouble for gold

The USD/JPY looks very interesting as the new week begins. It has hit a new high for 2020 despite Friday’s disappointing US jobs report, with the yen also weakening amid ongoing risk-on sentiment as investors anticipate the signing of the much-touted phase one trade deal between the US and China on Wednesday.

If the price action on this pair is anything to go by then gold could head in the opposite direction as demand for safe-haven assets drop back with the US-Iran tensions easing. Indeed, gold and the USD/JPY tend to have a strong negative correlation with one another. Gold bugs better hope then that either the negative correlation breaks down or the breakout in the USD/JPY turns out to be a fake one.

Source: Trading View and City Index.

But for now, price action on the USD/JPY appears rather bullish. On the weekly (inset), it formed a large bullish engulfing candle last week, with the reversal price action causing rates to peak above a bearish trend line and key short-term resistance at 109.70. Price now needs to hold above this level if the bulls want to take full control of near-term price action. However, a daily close back below 109.70, if seen, would complicate the outlook.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.