- Bullish advantage narrowed to the lowest level since November, down to 53% from 54% yesterday
- Fed news sent gold above 1,127 (monthly R3), but a correction is now more likely
- Three daily indicators are bullish and the same number of them is betting on a decline
- Economic events to watch in the next 24 hours: Spanish Retail Sales (Dec) and Unemployment Rate (Q4); Swedish Unemployment Rate (Dec); German CPI (Jan); ECB's Weidmann Speaks; US Durable Goods Orders (Dec), Pending Home Sales (Dec) and Unemployment Claims (Jan 23); US Natural Gas Inventories (Jan 22); UK Prelim GDP (Q4); Japanese Unemployment Rate (Dec), National CPI (Dec) and Industrial Production (Dec); Bank of Japan Interest Rate Decision and QE Volume
Meanwhile, gold retreated from 12-week highs on Thursday, after the Fed admitted a challenging global economy but said it was unlikely to change course on its rate-hiking path ahead. Fed policy makers still argued that the world's number one economy was on track for moderate growth and a stronger labour market even with gradual rate lifts. The Fed remains determined to increase the federal funds rate by one percentage point in 2016. However, the actual path of rate hikes will depend on "the economic outlook as informed by incoming data".
Japan's retail sales dropped more than expected in December, signalling that weak household spending will keep fourth quarter growth subdued. Sales at Japanese retailers declined 1.1% in December from a year earlier, falling for a second consecutive month. Analysts, however, had predicted a 0.1% decline. Measured on a monthly basis, sales slid 0.2% from a month earlier, compared with the 2.5% decline in November. The decrease adds to concerns that price gains will remain insufficient to boost economic growth, with data due Friday is likely to show inflation barely stay above zero. Turbulence in global financial markets and the Japanese Yen's recent strength add to pressure on the Bank of Japan to weigh policy adjustment to underpin price gains. Data on employment, household spending and industrial production will also be published before the BoJ decision is announced. Japan's economy emerged from recession, but growth remains weak as moribund emerging market demand and slow wage growth dent exports and private consumption. Policy makers hope that windfall from declining energy prices will encourage households to increase spending, though some experts warn that the world's third biggest economy may have suffered a contraction in October-December amid weak household spending.
UK house prices climbed at a slower than expected pace in January after a decline in mortgage approvals in the prior month, the mortgage lender Nationwide reported. House price growth slowed to 0.3% on month in January from December's eight-month high of 0.8%. As a result, a year-on-year growth declined to 4.4%. According to the British Bankers' Association, mortgage approvals for house purchase plunged in December to the lowest level in seven months of 43,975. The average price of a property is now 196,829 pounds, slightly down on December. According to the Halifax house price index, prices rose 1.7% between November and December, pushing the annual price change up by 9.5%. At the same time, a less volatile quarterly gauge of price growth showed an advance of 1.6%. Despite cooling at the beginning of the year, house price growth in the UK remains strong by historical standards. British house prices are expected to continue to rise in 2016 amid lag in construction. According to the National Association of Estate Agents, an average of 374 buyers were registered with each agent, down from 403 in November, but higher than the 360 potential buyers recorded in 2014 and the 302 in December 2005.
Upcoming fundamentals: US durable goods orders and first UK GDP insight
Thursday will be another busy day for economic calendar in Europe, US and Asia. In particular, the first major event will be UK economic growth at 9:30 GMT. British economy is assumed to grow by 0.5% in the three months through December, a slight increase in the pace of expansion of 0.4% seen in Q3. Annual economic growth, however, is estimated to decline from 2.1% to 1.9%. Another portion of data will be out in the US at 13:30 GMT. Orders for long-term usage goods are projected to plunge by 0.5% in December after no change a month before. A core indicator, which excludes transportation items, was revised upwards to zero change in November, but a renewed decrease of 0.1% is the base scenario for December. In Japan, the BOJ is previewed to keep the policy stance unchanged this time; however, some market participants see an expansion of monetary support as possible due to weak prospects for inflation. Governor Kuroda talked down the possibility of more easing, while speaking at Davos World Economic Forum last week. Apart from the BOJ, Japanese unemployment, inflation and industrial production data will be released in the period from 23:30 GMT to 23:50 GMT. Separately, consumer prices are forecasted to grow by 0.2% in December on a yearly basis, down from 0.3% in November.
Gold is at risk of correction from monthly R3
Gold booked another trading session of gains on Wednesday, after the Fed statement indicated lower probability of a rate hike in March. XAU/USD reached last monthly resistance (monthly R3) at 1,127. However, it failed to touch 200-day SMA slightly more from the upside. Asian session suggests a correction within the rising wedge pattern. This would allow for a selloff down to 1,085 in the medium-term. Initial bearish target for the next 24 hours is 100-day SMA at 1,104, which is guarded by weekly R1 and monthly R2 at 1,110/07. Nonetheless, daily technical indicators are calm and maintain mixed outlook.Daily chart
It looks increasingly likely that the 1H chart has provided the main bearish momentum for the bullion. We see prices dropping from the long-term December-January uptrend. In case the metal continues to fluctuate within the pattern, then 1H traders can assume that gold will eventually slump to 1,085 to meet another two-month uptrend.
Hourly chart