- Share of longs fell from 52 to 50%
- Bearish correction is anticipated at 1,205, the highest trading level since summer
- XAU/USD should continue its journey towards 1,230 (May high)
- Economic events to watch in the next 24 hours: US (Core) CPI (Sep), Unemployment Claims, Philadelphia Fed Manufacturing Index (Oct), FOMC Member Dudley Speech, Crude Oil Inventories
Gold traded near the highest level in more than three months on Thursday as weak economic data from China and the US fuelled speculation the Fed will refrain from hiking interest rates this year. US retail sales climbed modestly in September, while producer prices declined the most in eight months, suggesting the US economy was losing steam amid slowing global growth. Moreover, China's consumer inflation weakened more than expected in September while producer prices extended their decline to a 43rd consecutive month, stoking concerns about deflationary pressures in the world's second-biggest economy.
Senior market analyst with Cambridge Global Payments, David Starkey, says that the expectations for inflation number this week are for "mildly deflationary reading". He adds that "the extremely negative non-farm payrolls eliminate the possibility of October rate hike" and that in fact there is almost no chance of a rate hike this year. David explains that "it is difficult to argue for tighter monetary policy when the labour sector is not performing and there is deflation in the economy".
US consumer price index to accelerate decline; core inflation to stay barely positive
Considering the number and importance of today's events, there are likely to be exceptionally high levels of volatility around 12:30 pm GMT. The highlight of Thursday is expected to be the US inflation, which is the main variable for the Fed in decision on the rate hike. Against this kind of background the impact of the weekly release of the unempoyment claims is to be decreased, but it nevertheless could act as a catalyst or a restraint. One and a half hours later Philadelphia Fed manufacturing index is expected to show slower worsening of conditions in October than a month earlier.
Gold runs over 200-day SMA
We received a strong bullish signal yesterday, as gold effortlessly pierced through a dense resistance area, which was initially though to be able to hold the bulls at bay. This means the price is highly likely to keep increasing, while the next serious level will be only at 1,205 dollars, represented by the monthly R3 and June high. However, this resistance is unlikely to stay intact for long. Above it XAU/USD will continue its journey towards 1,230, where the highest level since May merges with the major falling resistance trend-line.Daily chart
The hourly chart of gold very much resembles the chart of EUR/USD, where the price has also broken through the upper edge of the rising wedge. Notable bearish correction is anticipated at 1,205, the highest trading level since summer.
Hourly chart
Sentiment neutral
The sentiment among OANDA and SAXO Bank traders deteriorated and came much closer to the one we see in the SWFX market. At OANDA 52% of open positions in gold are long (57% yesterday). The percentage of bulls at SAXO Bank is higher, at 54%, but the sentiment is still neutral, rather than bullish as yesterday, when 60% of positions were long.