- Bullish-bearish gap is widening, as only a third of all positions are long today
- Correction is possible on Tuesday, but mid-term outlook aims at breaching 1,263 (February high)
- Daily trading signals are estimating a short-term selloff
- Economic events to watch over the next 24 hours: German CPI (Mar); Swedish CPI (Mar); FOMC Members Harker, Williams and Lacker Speak; US Monthly Budget Statement (Mar) and Import Price Index (Mar); UK CPI (Mar); Chinese Trade Balance (Mar)
Gold advanced to the highest level in three weeks on Tuesday amid expectations the Fed will refrain from hiking interest rates soon and as the US Dollar traded close to an eight-month low. The precious metal has also been supported by some safe-haven demand. Disappointing economic data and uncertainty over the Fed's monetary policy has contributed to risk-aversion, underpinning investors' appetite for bullion and other assets considered as safer stores of value.
US consumers' expectations for inflation fell in March following a rebound from record lows in the prior month, adding to the uncertainty over how quickly the Fed can proceed with interest rate increases in the coming months. According to the Federal Reserve Bank of New York, expectations for inflation one year in the future declined to 2.53% in March, down from 2.71% in February. That was the fourth drop in the last six months and put expected inflation at just over a tenth of a percentage point above January's reading of 2.42%, the lowest level since the survey began in mid-2013. Moreover, the survey of consumer expectations predicted inflation to be 2.5% three years from now, compared with 2.6% in February. In January, expected inflation three years ahead was 2.45%, marking the lowest level since June 2013. The Fed views inflation expectations as important information of where inflation is headed and also a reading on the credibility of its 2% inflation target. The Fed supposes too-low inflation has a sign the US economy is not firing on all cylinders and at risk of slowing. The personal consumption expenditure index, the Fed's preferred inflation gauge, climbed just 1% in the 12 months ended in February, down from 1.2% in the prior month. Inflation has been below the Fed's 2% goal since April 2012.
British retail sales declined last month as bad weather undermined demand for clothes, while takings at grocers were hit by lower food prices and Easter closures. According to the British Retail Consortium, like-for-like sales declined 0.7% in March on a year earlier, the biggest decrease since last August. Sales, however, remained flat on year in total terms. A more underlying quarterly gauge showed a 1.4% gain in sales values. Some economists had expected the earlier Easter to boost sales, as it was the case in previous years when people splash out on seasonal foods and gifts. However, the BRC report showed the opposite effect, with pressure on food sales from stores closing on Easter Sunday. Consumer spending has been the main driver of economic growth in Britain in recent months and the March sales lull will fuel concerns the UK economy is losing strength. The Confederation of British Industries reported last week that retail sales volumes growth slowed slightly in March, with the outlook for the coming month improving as orders placed on suppliers increased above expectations. The UK's official statistics showed sales volumes dropped between January and February less than had been expected. Meanwhile, a quarterly measure showed the retail sector remained on a solid ground in February, showing growth for the 27th straight month, and climbing 0.8% compared with the previous quarter.
Upcoming fundamentals: China's positive trade gap to get even wider
American session in the evening on Tuesday and Asian session on Wednesday morning will bring the largest portion of fundamental news over the next 24 hours. Three members of the Fed's FOMC committee will talk today including Patrick Harker of Philadelphia, John Williams of San Francisco and Jeffrey Lacker of Richmond. At 18:00 GMT the US Department of Treasury will publish the monthly statement on budget performance. Economists forecast that the deficit will drop to $88 billion in March, down from $192.6 billion in February. This is a turbulent indicator, because tax revenues and spending have considerable seasonal swings. In the meantime, China's trade balance for March is out at 02:00 GMT on Wednesday. With exports and imports set to grow and decline by exactly 10%, respectively, analysts suppose the surplus will expand to $33.4 billion.
Gold sets ground for continuous recovery
Monday trading was finished with sharp gains for gold, as the price closed above the first weekly resistance line at 1,257.50. However, the bulls failed to extend this rally up to the second supply area placed between 1,260 and 1,263. We expect it to happen this week, but we are not ruling out a correction lower on Tuesday after some traders fix profit. It will be more than enough to hold the price above yesterday's low/opening level of 1,239. Among additional bearish risks, the daily technical studies are still maintaining the "sell" view, but dense demand areas below 1,235 should prevent XAU/USD from deep collapses.Daily chart
Intraday gains fell short of reaching the March 22 peak of 1,260.30. For now it proclaims nothing critical for the bulls. However, if they fail to attack this level for a second time throughout the next several days, it may create undesirable future consequences and is likely to boost confidence among the bears. Based on the 1H chart, any selloff is at risk of being prolonged down to the 200-hour simple moving average line at 1,232.28.
Hourly chart
Market expectations retreat further
In the meantime, the OANDA bullish portion came back below the 60% mark and stabilised near 59.2% by the April 12 morning. SAXO Bank's distribution between two types of clients is largely unchanged on a daily basis, because the longs are preserving their slim 5%-majority over their short counterparts.