- Bullish-bearish gap has stopped expanding, but still only 34% of positions are bullish
- Second failed attempt to cross 1,260/63 any time soon may damage bullish positioning
- Daily trading signals are estimating a short-term selloff
- Economic events to watch over the next 24 hours: French CPI (Mar); Euro zone Industrial Production (Feb); US Retail Sales (Mar) and PPI (Mar); Bank of Canada Interest Rate Decision; New Zealand Business PMI (Mar); Australian Employment Change and Unemployment Rate (Mar)
UK consumer price inflation jumped to 15-month high, rising to 0.5% from previous 0.3% this month, according to the Office for National Statistics. The reason for such an increase was a rise in the cost of air fares over Easter and more expensive spring and summer clothing ranges hitting stores. Air fares advanced 22.9% month-on-month this March, compared with increase of 2.7% in March 2015. Meanwhile, City analysts were surprised to see such a data release, since they had expected inflation to stay near zero or climb to 0.4%. However, other analysts emphasised that the longest periods of low inflation in a generation is likely to come to an end over the coming months, since higher petrol and import prices along with the rising average wages from the low Pound fed into the figures. In addition to that, an unexpected increase in the UK CPI is likely to effect on the Bank of England's decision on its monetary policy. The central bank is widely expected to keep its policy rate unchanged at 0.5% on Thursday's monetary meeting, but some analysts say the recent firming of inflation is laying the groundwork for tightening in the months ahead. In the meantime, very important data on core inflation performance showed the measure rose to 1.5% in annual terms. This increase is to further put a pressure on the BoE policy monetary policy decision.
China's exports increased in March for the first time in nine months, mildly boosting an economy that is struggling to regain strength. Economists, however, warned that the export rise, after months of declines, partly reflects a seasonal gain after the Lunar New Year holiday in February and is unlikely to be sustained in light of moribund global demand. Exports soared 11.5% in March year-over-year in Dollar terms, according to the General Administration of Customs. This compared with February's 25.4% plunge and exceeded a median 8.5% increase expectations. At the same time, imports in March dropped by a less-than-expected 7.6%, following February's 13.8% decrease. As a result, China's trade surplus shrank last month to $29.86 billion from February's $32.5 billion. China's March data came one day after the International Monetary Fund downgraded its global outlook. The IMF lowered its 2016 global growth outlook to 3.2%, from 3.4%. A day earlier, the World Bank downgraded its global forecast to 2.5% from 2.9% due to concerns over a US interest rate hike and a broad-based economic slowdown in emerging economies. Later this week China will release its much-anticipated growth data for the first quarter. The forecast is for a growth of 6.8% for the three months to March.
Upcoming fundamentals: US retail sector to show stagnation in March
US statistics on producer prices and retail sales for March is due at 12:30 GMT. Factory inflation should have ticked up by 0.2% after the same pace of a decline in February, leaving the annual reading at +0.2% as well. This is up from zero price growth in the prior month. Adding to that, the analysts suppose that the country's retail sales are likely to reveal their continuous weakness with a zero monthly increase in volume of goods and services sold. Excluding cars, the core retail sales are estimated to advance by 0.3%. Meanwhile, the Bank of Canada is going to make its interest rate decision later in the day at 14:00 GMT. Investors are not looking forward to any rate cuts from the current level of 50 basis points, but earlier many of them had assumed a rate cut would be appropriate, given slow economic growth and low inflation in the wake of oil price developments.
Gold takes break after touching 1,260
Tuesday's trading range of gold prices was very tight, compared to Monday's one. XAU/USD tested the crucial 1,260 mark, namely the weekly R2, but was eventually forced to come back and close the US evening session near 1,255. A second unsuccessful attempt to breach the 1,260/63 resistance cluster, which is also backed by the February high, would diminish the outlook. The bears are starting to prepare for an attack on a very dense demand between 1,237 and 1,221. Only by closing below the latter (55-day SMA) the bullion will be able to reestablish the negative outlook, which is backed by the daily technical indicators.Daily chart
Notwithstanding the daily chart mentioned above, the hourly chart has got more support lines to offer some optimism at higher levels than the 55-day SMA (1,221). One of them is the 200-hour SMA at 1,235. The second is the trend-line connecting lows of April 1 and April 6 near 1,227. As both of them lie quite far away from the spot, the probability of a long-term selloff remains insignificant at the moment.
Hourly chart
Market expectations remain depressed
A much smaller number of OANDA clients would like to see gold prices higher, even despite the fact that the bulls are still enjoying an overall majority. While yesterday there were more than 59% of long trades, this portion fell below 57% by Wednesday morning. On top of that, today there is almost no difference between SAXO Bank's bulls and bears, as both are holding around 50% of all transactions.