- There has been a surprising surge of bullish market share during Tuesday, from 31% to 50%
- Risk-seeking sentiment and positive US fundamentals may cause a decline in the near-term
- 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: Spanish Unemployment Change (Feb); US ADP Employment Change (Feb) and Crude Oil Inventories (Feb 26); FOMC Member Williams Speaks; Fed's Beige Book; UK Construction PMI (Feb); MPC Member Cunliffe Speaks; Australian Trade Balance (Jan); Chinese Caixin Services PMI (Feb)
Gold declined for a second trading session in a row on Wednesday, as global equities and the US Dollar climbed, after a report on the US manufacturing sector showed some improvement. The ISM's index of purchasing managers rose to 49.5 last month, compared with 48.2 in January. Moreover, construction firms boosted their spending by a robust 1.5% in January, to mark the biggest monthly increase since last May. Investors will turn their attention to other US fundamentals to assess the impact on stocks and the Fed's monetary policy. The most important report is due on Friday, when data on US non-farm payrolls will be published.
US manufacturing activity continued to shrink in February for the fifth consecutive month, underscoring strong headwinds that the nation's assembly lines have recently faced. According to the Institute for Supply Management, the index of purchasing managers rose to 49.5 last month, compared with 48.2 in January. Even though, the figure represented the highest reading since September 2015, the gauge remained below the key 50-mark threshold, which indicates a contraction in manufacturing that accounts for 12% of the US economy. A strong Greenback, sluggish global demand and spending cuts by energy firms following a precipitous decline in crude oil prices had derailed the manufacturing sector. New orders sub-index stayed unchanged at 51.5 in February, while production sub-gauge climbed to 52.8, compared with January's 50.2. The employment sub-index also inched up to 48.5, compared with January's 45.9. At the same time, Markit's final PMI declined to 51.3 in February, down from 52.4 seen in January. Jobs growth slowed to a five-month low, while factory gate prices declined the most since June 2012. A separate report showed construction firms boosted their spending by a robust 1.5% in January, to mark the biggest monthly increase since last May.
Canada's economy slowed the most among the Group of Seven developed countries in 2015, highlighting the effect of the commodity-price shock on the trade-reliant country and the challenges its policy makers face in supporting growth. Canada's gross domestic product increased 0.8% on annualized basis in the fourth quarter, down from the 2.4% growth rate in the July-September period, Statscan reported. The biggest drag on growth was business investment, which dropped 1.7% from the preceding three-month period and declined for the fourth straight quarter. In December, the Canadian economy grew 0.2% from the prior month, overshooting expectations for a 0.1% monthly gain amid robust gains in manufacturing and wholesale trade. In 2015, Canada's oil-battered economy expanded just 1.2%, compared with 2.5% in 2014, marking the slowest growth pace since the 2009 recession, as plunging prices for oil and other commodities reduced national income, business investment and domestic demand. Economists are sceptical about the Canadian economy's potential this year, saying that the economy is unlikely to pick up the pace. The average analysts' estimate for GDP growth is 1.4%. Moreover, experts widely expect the Bank of Canada to hold its key rate steady at 0.5% and see little chance of a rate change this year.
Upcoming fundamentals: US created 185,000 jobs in February, survey for ADP shows
The private ADP report on employment in the world's largest economy will be released at 13:15 GMT on Wednesday. This is the early indicator for official Labour Department's numbers due on Friday. Analysts' survey suggests there were 185,000 generated in February, slightly less than 205,000 a month before. Normally, the ADP report is unable to predict precise official numbers, but it usually indicates the general trend in payrolls. Meanwhile, at 19:00 GMT the US Federal Reserve is going to publish the Beige Book, which is a collection of discussion materials among 12 members of all Federal Reserve banks. It is a reliable indicator of sentiment among FOMC members. As policymakers are coming together to make an interest rate decision on March 15-16, market participants are clearly looking for any signs of another hike in the wake of recent turmoil in global markets.
Gold risks falling under February uptrend
Growing risk appetite across global stock markets pushed investment out of the safe haven metal, which bounced off daily highs at 1,248 yesterday. The February uptrend, currently at 1,222, is now at risk of being tested on Wednesday. Bearish success here offers the opportunity to send XAU/USD down to the 1,205/1,199 support cluster that consists of monthly PP, 20-day SMA and weekly S1. Moreover, there we have another demand in face of the January uptrend. However, daily indicators remain long on gold. If the weekly PP (1,225) holds ground, firstly the bulls will have to test recent peaks near 1,250.Daily chart
Inability to hold above the mid-February uptrend at 1,222 is going to expose the February downtrend around 1,215. To see further bearish estimates building up, the cross has to overtake these lines with a relative ease. In such a case the focus will shift to the January uptrend at 1,193.
Hourly chart
Market sentiment unexpectedly surges to neutrality
The gap between long and short clients continues to increase in the OANDA market. Right now the former are keeping 54.61% of all transactions, up from about 52% on Tuesday morning. Similar tendency is being observed with SAXO Bank sentiment where the bulls advanced to 54.38%.