- 59% of all SWFX positions are short
- A drop below 55-day SMA is shifting current market expectations noticeably to the downside
- Daily technical indicators are undecided
- Economic events to watch over the next 24 hours: German ZEW Economic Sentiment (May); US New Home Sales (Apr); UK Public Sector Net Borrowing (Apr); Eurogroup Meetings; New Zealand Trade Balance (Apr)
Gold dropped to trade near the lowest level in more than three weeks on Tuesday, as the precious metal remained under pressure amid expectations that the Fed will hike interest rates as soon as next month. The Fed's officials are scheduled to speak this week and are expected to support the case for a rate hike within months. Meanwhile, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, climbed 0.38% to 872.52 tonnes on Monday.
The Reserve Bank of Australia's outgoing Governor Glenn Stevens defended the central bank's inflation target amid calls from some economists to сut the interest rate amid persistently low inflation around the globe. The Governor said that impossible to control inflation in the "very short-term and you shouldn't try." Australia's annual inflation rate has remained below 2% since the third quarter of 2014. Australia's weak inflation outlook underscores the challenge facing Stevens's successor, his current deputy Philip Lowe. Stevens is due to step down on September 17. The Governor added that inflation was currently a "bit too low" but voiced confidence it would return to the 2%-3% range in the medium-term. Beyond weaker-than-expected inflation numbers Stevens said the economy was performing reasonably, but admitted growth was not progressing at the desired rate. The head of the central bank also highlighted a cooling of the housing market, although the RBA remained vigilant given the risks of low interest rates. The RBA made its first move on the OCR in a year at its most recent board meeting on May 3, sending the cash rate to a record low of 1.75% despite prior concerns over the potential to further stimulate the housing market. Analysts expect at least one more rate cut this year, with that move potentially coming during Stevens' term as futures pricing points to a near 50-50 chance of an August cut.
US home resales continued to rise, increasing more than expected in April, as housing demand strengthens alongside gradual job growth and ultra-low interest rates. Sales surged 1.7% in April from the previous month to a seasonally adjusted annual rate of 5.45 million, the National Association of Realtors reported. Economists had predicted sales would climb 1.3% to a rate of 5.40 million in April. Sales soared 6.0% from a year ago. Nevertheless, there were regional variations. While sales of existing homes surged in the Midwest by 12.1% last month and also increased in the Northeast, the South and West declined. Thus, affordability remains a key issue. The national median sale price for a previously owned home last month stood at $232,500, up 6.3% from a year earlier, marking the 50th consecutive month of year-over-year gains. Prices are rising at a far faster rate than most workers' wages, average weekly earnings adjusted for inflation climbed just 1.3% in April from April last year. Also, the NAR said there were 2.14 million existing homes available for sale at the end of April, up 9.2% from March as sellers put their homes on the market for the spring selling season. However, compared with April a year ago, inventory declined 3.6%. That is a 4.7-month supply at the current sales pace.
Upcoming fundamentals: US new home sales to add 2% in April
The only American data release due on Tuesday will cover housing at 14:00 GMT. New home sales in the world's largest economy in April are estimated to increase by 2% on a monthly basis after they fell by 1.5% in the preceding month. The total annualized number of single-family housing unit sales is likely to rise to 520,000 from 511,000 on an annualized basis. Earlier in the day, namely at 8:30 GMT, the UK Office for National Statistics will publish the fresh borrowing data of the country's government in April. This is the first month of a new financial year in Britain when the Treasury plans to continue reducing the budget shortfall. Current forecasts project that the deficit will narrow down just slightly to 5.8 billion pounds in April 2016 from 6 billion pounds over the same month last year.
Gold closes under 55-day SMA, outlook slips
Over four trading days through Monday of this week the precious metal has fallen by about 2.5% of its value and the sell-off continues to take place today. By closing below the major 55-day SMA, currently at 1,249.52, gold puts its near-term outlook at a substantial negative risk. We see the closest demand reaching the metal as low as 1,235.20 where the monthly S1 lies for the moment. To meet this support, however, gold will have to accept additional 1.1% of losses from Tuesday's open price. Despite that, daily technical indicators suspect there is a roughly equal probability of both gains and losses today.Daily chart
A recovery appears to become less probable, judging from the 1H chart. Since Thursday the metal has been continuously failing to considerably bounce off the bearish channel's lower edge, which is located marginally below the 1,240 level. Downside pressure is also coming from the 200-hour SMA, as this line is heading to the south with a moderately negative slope. A closure beneath the channel line would expose the April 22 low at 1,226.94 as the first support to contain a drop.
Hourly chart
Bullish market portion continues to improve
Meanwhile, OANDA and SAXO Bank clients are overwhelmingly positive with respect to gold, precisely in 65% and 59% of all cases, respectively, in the morning on May 24.