- Sentiment worsened substantially, as bullish market share dipped to 43%
- Risks are still skewed mainly to the upside; no signals the rally is over for now
- Aggregate daily technical indicators are completely muddled on the basis of the next 24 hours
- Economic events to watch over the next 24 hours: German Industrial Production, Current Account and Trade Balance (Dec); US JOLTS Job Openings (Dec); UK Trade Balance (Dec); BOE's MPC Member Cunliffe Speaks
Gold surged to near the highest level since June on Tuesday, as uncertainty over the world's economy growth puts the yellow metal on course for its longest rally since 2011. Underlining bullion's rising appeal, holdings in eight major gold exchange-traded funds soared to 43.3 million ounce on Friday, the highest level since July 2015. The precious metal gained 5% last week, the biggest increase since July 2013, fuelling expectations that the price can climb higher as global headwinds make it challenging for the Fed to hike interest rates this year.
The US labour market started the year on a weaker footing, the Fed's comprehensive measure showed. The Labor Market Conditions Index dropped to 0.4 points in January after a revised 2.3 points in December, reaching the lowest reading since April 2015. The indicator averaged 1.9 points in all of last year, compared with 5.2 points in 2014. The January labour market report confirmed a slowdown in job creation after a rapid growth late in 2015 amid unusually warm weather. Rising wages and the unemployment rate at an eight-year low signalled the labour market recovery remains strong. Non-farm payrolls rose by 151,000 jobs last month, missing expectations for a 190,000 gain and following 292,000 new jobs created in December. Yet, it appeared to be enough to push the US jobless rate to 4.9%, down from 5.0%, the Labor Department reported. In January, all the employment gains were in the private sector, which added 158,000 jobs. The services sector dominated the payrolls increase last month, with 118,000 jobs created. In addition to that, average weekly earnings increased 12 cents an hour or 0.5% on a monthly basis, translating into a 2.5% annualized gain. Until recently, wage growth has been the one factor missing from America's recovery from the recession. As the unemployment rate remains low, many economists expect Americans to see paychecks increase. Fed Chair Janet Yellen is due to reveal a detailed assessment of economic trends this week when she delivers the semi-annual monetary policy report to Congress.
Canada's building permits jumped more than expected in December, boosted by increased construction intentions for multi-family homes. According to Statistics Canada, the total value of building permits issued by Canada's municipalities in December surged 11.3% to C$6.92 billion, whereas analysts had projected a 6.2% rise. However, November's figure was downwardly revised to 19.9% from 19.6%. Measured on an annual basis, permits issued dropped 1.6%. Residential building permits soared 16.3% as plans to build multi-family dwellings such as apartments and condominiums advanced 39.1%. On the other hand, other residential data disappointed. Canada's housing starts dropped for a second month in a row in January, led by weakness in provinces, which got hurt by declining oil prices and rising unemployment rates. The seasonally adjusted annual rate of housing starts dropped to 165,861 units from the downwardly revised 172,533 in December, whereas analysts were projected to see 185,000 starts. Meanwhile, the Bank of Canada said that its benchmark interest rate should not be considered the primary tool responsible for supporting Canada's financial system. Other regulatory measures are required to help keep financial stability and address any emerging vulnerabilities.
Upcoming fundamentals: Markets to skip Monday-Tuesday and wait for Yellen's testimony
The first two days of this trading week will bring us little information about the state of global economy, just because very few vital fundamentals are due from Europe, US or Asian countries. The market is mainly focusing on Janet Yellen's upcoming speech on Wednesday. Fed Chair will hold the traditional Humphrey-Hawkins testimony before both House and Senate committees of US Congress. Markets are willing to learn something new about the likelihood of the Fed raising interest rates in March and later in the year. Recent market turmoil has made it uncomfortable to consider four benchmark rate increases throughout 2016, even though labour market conditions remain sound.
Gold sees upside pressure, set to retest 1,200
Stress across global equity markets is skewing gold's risks to the upside. Yesterday the August 2015 high/monthly R2 at 1,170/68 defended intraday bearish attacks, which resulted in a resumption of the up move. Prices touched the 1,200 mark, but ultimately bounced back to close below the October 2015 high at 1,188. In fact, bullish success above 1,193 (weekly R1) will imply a climb up to the last monthly supply at 1,209 and weekly R2 at 1,213. Given instability of fundamentals, in a nutshell we would not estimate the rally is over.Daily chart
In the 1H chart we are monitoring the June high of the previous year, which offers some supply above the crucial psychological level of 1,200. This is our primary target for the next 24 hours, with the May 2015 high following at 1,232 in the medium-term. Bearish risks are largely eliminated, as long as gold keeps hovering above the 200-hour SMA 1,139. Although, we cannot rule out the bulls will struggle shortly around 1,200.
Hourly chart
SWFX bulls fall into minority for first time in 13 weeks
Meanwhile, this Tuesday morning the OANDA sentiment holds a mild bearish stance on gold, as 50.51% of all transactions are short. SAXO Bank distribution is more successful with respect to the longs, but their distance from the bears is ultra-low at just three percentage points.