Three weeks ago, I suggested that Asian currencies would likely allow opportunities to sell rallies, especially among the commodity pairs, which include the Australian dollar (AUD) and New Zealand dollar (NZD). These currencies have remained under pressure hitting new lows this week as the Coronavirus continues to stay relevant among headlines.
In that article, I mentioned the Japanese yen (JPY), which is typically a safe-haven, but was ripe to fall on strong momentum if the Coronavirus situation continued to escalate. This week, the yen began to drop as global concern continues to rise while the alarm has spread to Japan’s central bank. Today the Bank of Japan made statements concerning the Coronavirus, reinforcing how uncertain the economic impact may be but warning that such an effect may be very relevant.
Meanwhile, as the yen is weakening, there is a new safe-haven that has developed as gold is once again in momentum. Goldman Sachs released a note today stating that if the Coronavirus issues continue into the second quarter, then their expectation is for the futures to rise to $1750 and even $1850 in the months to come.
Gold is often viewed as the “other currency” as it is exchanged with currencies throughout the world, and the price fluctuates based on economic circumstances. If one can trade gold and desires to do so, then it may be prudent to look for at least a modest pullback as not to enter at a multi-year high tick, which printed this morning.
An additional strategy to trading gold to the long side is to do so with a weaker currency as naturally that way; one would get more bang for their buck. For instance, if you are in the United States, and can purchase gold futures, which could be the regular-sized product or one of the smaller mini or micro gold futures, then you are doing so in terms of U.S. dollars. However, to offset this, then you could short a proportionate amount of a currency future (regular, mini, or micro) for a market that you expect to be weak. Thus, you are long gold and short the soft market, which amounts to being long gold in a weak currency.
While I am not necessarily advocating for traders to go long gold, I do suggest to consider any time you engage in swing positions in that metal, that you buy gold utilizing a weak currency and short gold in a stronger currency.
One thing to be aware of on the USD/JPY weekly chart is the historical resistance from 2017-2018 as this pair climbs toward the 114 to 115 level. It would be wise for traders of this pair to continue to monitor news as these price areas are tested.