- SWFX traders fixed profit on Monday, pushed the bullish share back to 54%
- Consolidation above Nov-Dec uptrend will expose an important supply cluster at 1,084
- Aggregate daily technical indicators are now estimating gains for gold
- Economic events to watch in the next 24 hours: German Unemployment Change and Unemployment Rate (Dec); Italian CPI (Dec); Euro zone CPI (Dec); US Vehicle Sales (Dec); UK Construction PMI (Dec); New Zealand GDT Price Index (Jan); Chinese Caixin Services PMI (Dec)
Gold climbed for a second day on Tuesday as escalating geopolitical tensions between Saudi Arabia and Iran, as well as global equity rout triggered return to safe haven assets. A 7% plunge in China's stocks on Monday due to weak economic data sparked worries over global economic growth on the first trading session in 2016, and pushed European and US shares lower. Nevertheless, safe-haven rally is likely to be short-lived, with focus shifting back to US monetary policy soon.
US manufacturing sector lost some steam in December, as both Markit's and the Institute for Supply Management reported a decline in business activity. According to the ISM, manufacturing PMI came in at 48.2 last month, down from 48.6 in November, whereas economists had predicted the gauge to rise to 49.0. At the same time, the final PMI reading from Markit dropped to 51.2 during the last month of 2015, down from 52.8 in November. Manufacturers continue to struggle with a strong US Dollar, slowdown in China, as well as volatile stock market. Meanwhile, Fed Vice Chairman Stanley Fischer said the Fed's tool kit proved to be successful in raising the benchmark federal-funds rate after the December decision to hike rates from zero. Fischer highlighted that officials are ready to consider changes should problems arise. The US central bank in mid-December decided to raise the fed-funds rate to a range of 0.25% to 0.50% after keeping it near zero for seven years. There were some concerns about Fed's ability to hike rates, but the fed-funds rate moved into its new range the day following the Fed's decision. Fed policy makers project that they will further raise the target range by a full percentage point over the course of the year, to 1.25%-1.5%.
The first economic report of 2016 showed business activity in China's manufacturing sector continued to falter for a fifth consecutive month in December, the longest such streak since 2009. According to the National Bureau of Statistics, the official purchasing managers index climbed to 49.7 last month from 49.6, the lowest level in three years in November. Nevertheless, the gauge remained below the key 50-mark threshold, which separates contraction from expansion. Furthermore, the Caixin China Manufacturing PMI declined to 48.2 in December from 48.6, indicating contraction in the sector for the 10th straight month. Amid persistent weakness in China's manufacturing sector there was more positive news from the NBS' separate non-manufacturing PMI report, which showed the index climbed to 54.4 in December, the fastest growth in 18 months. Should Caixin's services report for December later in the week reveal a similar strength of the sector to that recorded in the official survey, it will add to signs of China's two-speed economy and reinforce the view that China's economic rebalancing found further traction at the end of 2015. China's leaders say 2015 growth can meet the target of about 7% and reassure they are ready to act to prevent a sharp slowdown. President Xi Jinping said GDP growth in the next five years should average at least 6.5% per year.
Upcoming fundamentals: Light US session and upcoming Chinese services PMI
US session will be silent in terms of statistical data on Tuesday, following a busy and quite disappointing Monday. Therefore, the attention will be turned back to China where the Caixin Services PMI will be published in the night between Tuesday and Wednesday at 01:45 GMT. While production sector in the world's second largest economy seems to be contracting, the services industry will hold a balance by posting activity growth in December. PMI Index is forecasted to come in at 52.3 points, up from 51.2 points in November 2015.
Gold's bulls are penetrating two-month downtrend
Risk-averse sentiment among market participants made the precious metal increasingly buoyant on Monday. After piercing through the Nov-Dec downtrend line, gold approached a vital resistance in face of the weekly R2, monthly R1, upper Bollinger band and 55-day SMA at 1,084. However, the daily close was fixed around 1,075 and below the two-month trend-line. However, Tuesday morning we are seeing extra bullish momentum, which is pushing the bullion higher. Any consolidation above 1,075 will expose the 1,084 supply zone. Moreover, the bulls are getting additional support from monthly/weekly PPs at 1,065.Daily chart
The yellow metal has been trading above 200-hour SMA since Monday midday. This fact improves our short-term expectations; however, it should be noted that the moving average has been unable to influence the bullion a lot so far. It proclaims that downside risks are in place and we are not ruling out any correction below 1,070.
Hourly chart
SWFX traders are closing long positions on gold
Similarly, OANDA's long share tumbled by more than four percentage points to 72.77% by Tuesday morning. As for the SAXO Bank sentiment, there the bullish market share declined from 70% to 66.45% during the observed time period.