- Bullish participants improved their market positioning, pushed their share above 30%
- A climb is being extended through Tuesday and first bullish target is Feb 24 high at 1,253.41
- Technical studies on both daily and weekly time frames are forecasting a rally for gold prices
- Economic events to watch over the next 24 hours: Euro zone Manufacturing PMI (Feb); German Unemployment Change/Unemployment Rate (Feb); Euro zone Unemployment Rate (Jan); Italian GDP (2015); US ISM Manufacturing PMI (Feb); Australian GDP (Q4); UK Manufacturing PMI (Feb); Canadian GDP (Dec)
Gold rose for a second consecutive day on Tuesday, supported by safe-haven demand after disappointing China's data fueled concerns over the global economy. Activity in China's manufacturing sector weakened in February, with the official manufacturing PMI falling to its lowest level in over four years. The data came on heels of an overnight move by the PBoC to cut the reserve requirement ratio and resume its easing cycle. In the meantime, assets of SPDR Gold Trust, the world's top gold ETF, increased 1.95% to 777.27 tonnes on Monday, the highest level since September 2014.
Activity in China's manufacturing sector weakened in February, reinforcing the view for more monetary stimulus as the world's second biggest economy continues to struggle with overcapacity and sluggish demand. China's official manufacturing PMI dropped to 49.0 last month, its lowest level in over four years, down from 49.4 in January. The official PMI has remained below the key 50-mark threshold for seven consecutive months. A sub-index of official PMI measuring production declined, while the new order sub-index dropped to the lowest level since the global financial crisis. A separate private measure of the nation's factory activity health, the Caixin China manufacturing PMI declined to 48 in February, compared with 48.4 the month before. The Caixin index has remained in contraction territory for 12 months in a row. The weak PMI data was partly due to seasonal effects, with a week-long Lunar New Year holidays keeping much of the country closed. Analysts believe that markets should wait until March to get a more precise picture of China's production. Moreover, China's official services PMI dropped to 52.7 in February, down from 53.5 in the prior month. Earlier in the week the PBoC cut its Reserve Requirement Ratio for large banks by 50 basis points to 17%.
Canada logged a record annual current-account deficit for 2015, while a shortfall in the fourth quarter widened slightly from a revised third quarter. The current account gap increased to C$15.38 billion in the final quarter of last year from a C$15.31 billion deficit in the third quarter. Canada had a current-account deficit of C$65.71 billion for 2015, which is the widest gap since 2012. The deficit in 2014 totalled C$44.89 billion. The widening of Canada's current-account deficit last year highlights the economic shock felt from the commodity-price rout. Economic output decreased in the first half of the year, and the value of the Canadian Dollar has been on a downward trend until recently. Canada's current-account deficit is the second-biggest among the Group of Seven leading economies when measured as a percentage of gross domestic product. The average among member countries of the Organization for Economic Cooperation and Development is a current-account surplus of 0.2% of GDP. Statistics Canada releases fourth-quarter GDP data on Tuesday, which is widely predicted to show the country's economy stalled. Meanwhile, the recent data showed Canada's inflation accelerated at the fastest pace in over a year, with the CPI climbing to 2% in January.
Upcoming fundamentals: US industry to continue contracting in February
The Institute for Supply Management, which publishes monthly readings for activity in manufacturing sector of the US economy, will have its fresh numbers released today at 15:00 GMT. More precisely, this is going to be the final reading for February as earlier numbers had been out two weeks ago. Analysts foresee a continuous weakness in this industry, as stronger Greenback is substantially worsening conditions for exports-dependent companies. The mean survey argues for an upward revision to 48.6 points from 48.2 earlier last month, but any reading below 50 points proclaims the sector's activity is declining.
Gold picks up and eyes February highs
Monday has been a green day for the bullion, which bounced off the February uptrend and spiked towards the 1,240 mark. Tuesday sees a continuation of the bullish tendency, which is estimated to lead to a testing of the first weekly resistance at 1,249. This one is guarding the February 24 high at 1,253 and the multi-month high at 1,263. Growth beyond the latter is unlikely throughout the next 24 hours, unless there is any heavy shock from external economic factors. However, daily technical indicators do not abandon their optimistic stance, meaning general sentiment prefers a rally to a bearish correction.Daily chart
One-hour chart development is now focusing on the positive-sloping trend-line, which connects highs of February 18 and February 24. It is going to be met at 1,265 and should trigger a new down-leg in the medium-term.
Hourly chart
Bulls grow above 30% for first time in 5 days
We have observed little changes in terms of OANDA bullish-bearish distribution of open positions. Now there is an exact two pp positive gap between them. In the meantime, SAXO Bank clients are moving more in the direction of neutral sentiment. Their long traders experienced a drop from more than 55% on Monday to less than 53% this morning.