- SWFX bullish traders are holding a quite fragile and unstable majority of 54% vs 46% for bears
- All eyes on Fed statement as probability of another hike is close to 0%
- Daily technical indicators (including RSI) see gold prices steady today
- Economic events to watch in the next 24 hours: French Consumer Confidence (Jan); Italian Consumer and Business Confidence (Jan); US New Home Sales (Dec) and Crude Oil Inventories (Jan 22); FOMC Interest Rate Decision, Monetary Policy Statement, Pace of MBS Purchase Programme and Pace of Treasury Purchase Programme; UK BBA Mortgage Approvals (Dec); RBNZ Interest Rate Decision; New Zealand Trade balance (Dec); Japanese Retail Trade (Dec)
Meanwhile, gold traded near 12-week high on Wednesday, buoyed by a weaker US Dollar as investors awaited the outcome of the Fed's policy meeting. The US central bank is widely expected to keep interest rates on hold amid global economic headwinds coming from China and Europe. Gold's safe-haven appeal is returned on markets this year in light of plunging equities and oil prices. Reflecting rising confidence in gold, holdings of SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, stood at 21.52 million ounces on Tuesday, the highest since November 5.
US consumer sentiment rose in January to the highest level since October despite a stock market rout and increase in house prices in November, indicating underlying resilience in the world's number one economy despite a steep growth slowdown in recent months. The Conference Board's index of consumer confidence surged to 98.1 this month from a revised 96.3 in December, whereas economists had predicted a decline to 96.0. Furthermore, expectations index soared to 85.9 in January, up from 83 in the preceding month, though Americans' assessment of current economic conditions was unchanged from December. Consumers seemed to shrug off the recent precipitous plunge in the stock market and signs of economic weakness overseas. The confidence index reached a post-recession high of 102.6 in September. In addition, the report revealed that Americans' outlook for the labour market was also more optimistic. Those expecting more jobs in the coming months climbed 13.2% from 12.4%, while those anticipating fewer jobs fell slightly in January. However, there are signs the weakness from manufacturing and export-focused industries is starting to filter into the services sector, with the latest data showing activity in that sector dropped to the lowest level in a year in January.
The Fed's decision to hike interest rates in December last year partly contributed to the turmoil in emerging markets, Bank of England Governor Mark Carney said. Yet, the core root of the problems does not lie solely in the Fed's action, but in emerging markets themselves. Furthermore, Carney reiterated that the conditions necessary for the BoE's Monetary Policy Committee to start normalizing policy were not yet met. Carney is still looking for the renewal of growth above trend, unit labour costs pickup, as well as a continued firming of core inflation. With oil prices damping inflation, economists have pushed back forecasts for a rate hike to the second half of 2016, with some, including Royal Bank of Scotland and BNP Paribas, not predicting a move until next year. When asked about his governship at the BoE, Carney said that he would need to decide this year if he is willing to ask to stay on for a full eight-year term instead of five years he indicated when he was appointed. Carney was named to the role in late 2012 by Chancellor of the Exchequer George Osborne. He succeeded Mervyn King at the London-based central bank in July 2013, meaning he reached the half-way point of the five years he said he will serve at the end of 2015.
Upcoming fundamentals: Central banks in focus on Wednesday
This week features a number of central bank events and Wednesday will become a centre stage for the Federal Reserve and the Reserve Bank of New Zealand. Both of them are expected to keep interest rates unchanged. Markets will be looking at the Fed policy statement, which will indicate the level of awareness among FOMC members about continuous market instability in China and elsewhere in the world. Despite that, any potential rate cut from RBNZ is unlikely to surprise markets. New Zealand has been in an easing mode for quite some time already, and falling inflation will only fuel the idea of more central bank support. Fed decision and statement are due at 19:00 GMT, while RBNZ data is out at 20:00 GMT.
Gold surges further as 200-day SMA is looming
Gold will likely manage to consolidate above 1,107 on Wednesday, in case it preserves gains of the previous trading session. On Tuesday the precious metal climbed to 1,120 and the next major resistance zone is fairly reachable over the next 24 hours. The Fed should provide a dovish statement to weaken the Dollar and raise demand for the safe haven. We are watching the 200-day SMA at 1,130 and this level is reinforced by a third monthly resistance at 1,127. Success here will imply a major shift of market sentiment, while new focus will be on the 2015 downtrend line at 1,150.Daily chart
The December-January downtrend is placed within just a few steps from the current spot for gold. The one-hour chart is therefore assuming a new down-leg is possible to be started at 1,126. In case XAU/USD breaches this crucial resistance, the next target for the bulls will be August 2015 high at 1,170.
Hourly chart