- Bullish-bearish gap has tightened since yesterday to 10% from 16%
- A spike above 200-day SMA should be a confident bullish signal for the market
- Aggregate daily indicators are no longer projecting confident gains for gold
- Economic events to watch in the next 24 hours: Euro zone Services PMI (Jan) and Retail Sales (Dec); US Services PMI (Jan), ADP Non-Farm Employment Change (Jan), ISM Non-Manufacturing PMI (Jan) and Crude Oil Inventories (Jan 29); UK Services PMI (Jan)
Gold steadied near a three-month high on Wednesday amid its safe-haven appeal, as equity markets came under pressure due to faltering global economy. Furthermore, increasing demand from China, the world's top gold consumer, ahead of the Lunar Year holiday also supported bullion. Oil continued to trade near multi-year lows, while Asian stocks declined again as concerns over a slowing world's economy spurred further risk-off mood among market participants. On top of that, the precious metal is supported by expectations that the Fed may also go easy on hiking interest rates amid the global economic headwinds.
Growth in the UK construction sector unexpectedly slowed in January to the weakest level in nine months following a short-lived recovery in December. The Markit/CIPS UK construction PMI fell to 55.0 from 57.8, against economists' forecast of 57.5. Housebuilding and commercial property work were the biggest drag on the headline indicator. Furthermore, optimism among construction companies fell to the lowest level since December 2014. Even though employment within the sector was sustained in January, it rose at the weakest pace for more than two years. Construction remains one of the most volatile components on the output side of the UK's gross domestic product. It was again among the downward drivers in the final quarter of 2015, when it dropped 0.1% from the third quarter. Overall Britain's economy grew 0.5% in the December quarter, up from the downwardly revised 0.4% in the preceding trimester. Services remained the biggest driver of the economy, accounting for 78% of GDP. Investors' eyes now turn to the services PMI due Wednesday and "Super Thursday", when the Bank of England announces its policy stance and publishes the Monetary Policy Committee minutes as well as quarterly Inflation Report forecasts.
Bank of Japan Governor Haruhiko Kuroda said the BoJ has ample room to increase further monetary accommodation and is ready to cut interest rates deeper into negative territory. Even after launching what Kuroda described as "the most powerful monetary policy framework in the history of modern central banking," the Governor is prepared to deploy new tools to support the world's third biggest economy if existing tools appeared to be ineffective. The BoJ chief said although Japan's economy was recovering moderately, it was taking longer than expected to reach the 2% inflation target due to slumping energy costs. Kuroda added that the recent global markets rout and slowing emerging economies could undermined Japanese business sentiment and discourage firms from increasing wages. However, Kuroda remains optimistic on China's outlook, saying the world's second biggest economy was likely to ensure stable growth as policy makers have a lot of opportunities to provide additional fiscal and monetary stimulus measures. The BoJ stunned global financial markets by following European counterparts, when it introduced negative interest rates on January 29. The central bank will charge a 0.1% interest on some of the excess reserves financial institutions park with the BoJ, while keeping its existing asset-buying programme unchanged.
Upcoming fundamentals: US economy to create 193K new jobs, ADP report to show
US economy has been managing to withstand global economic risks so far. At the same time, recent turmoil in equity and commodity markets throughout the vast part of January could potentially produce some negative pressure on labour market and the first signal of it is expected today at 13:15 GMT. The private ADP employment survey is forecasted to show the world's largest economy generated 193,000 new jobs in January, down from 257,000 in December. Economists claim that ADP survey is not precisely predicting the Department of Labour's indicator for employment, which is due on Friday, but it is usually able to indicate a trend. Meanwhile, the ISM non-production PMI is awaited by 15:00 GMT. Services industry in the US is looking much better than manufacturing, and the gauge for services should come in at 55.1 points for January. Any reading above 50 points indicates that conditions are improving.
Gold awaits bearish momentum from 200-day MA
Risks for the bullion are currently skewed to the downside, as the XAU/USD cross is hovering just around an extremely important resistance, namely 200-day SMA at 1,129. To consolidate above it, gold will also have to erase both the weekly R1 and Dec-Jan uptrend at 1,131/33. Such a scenario will become a vital positive signal for gold's future trading. However, a possible bearish impetus provided by 200-day SMA is likely to cause a sell-off down to the weekly pivot point (1,114), which is followed by a bunch of supports above 1,100. Meantime, daily indicators assume a mostly sideways trading over Wednesday.Daily chart
In the 1H chart gold is developing along the Dec-Jan uptrend line, but it has refrained to initiate a confirmation so far. The number of future options is decreasing, while 200-hour SMA (1,115) is quickly approaching the spot of 1,128. The moving average has not been breached since January 20, meaning slump below it will be a confident bearish signal for gold.
Hourly chart