- Almost 60% of SWFX market participants are sceptical with respect to gold
- A potential plunge below weekly pivot point (1,251) is set to reopen February uptrend at 1,233
- Aggregate daily technical studies are bullish on gold this Wednesday
- Economic events to watch over the next 24 hours: US MBA Mortgage Applications (Mar 4), Wholesale Inventories (Jan) and Crude Oil Inventories (Mar 4); UK Manufacturing/Industrial Production (Jan) and NIESR GDP Estimate (3M-Feb); Bank of Canada Interest Rate Decision; Reserve Bank of New Zealand Interest Rate Decision; Chinese CPI (Feb)
Gold declined on Wednesday, following the Euro amid expectations that the European Central Bank will ease monetary policy this week. Investors predict the ECB to lower its deposit rate by at least 10 basis points and expand the asset-buying programme as soon as Thursday. Meanwhile, holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, declined to 25.4 million ounces on Tuesday, but remained near 18-month highs reached last week.
Canada's building permits dropped more than expected in January, driven by lower construction intentions for multi-family dwellings. The value of Canadian building permits granted in January plunged 9.8% from December, the second steep decline in three months, according to Statistics Canada. The retreat exceeded the 2.5% decrease expected by analysts. Moreover, Statscan also revised December's gain down to 7.7% from an initial 11.3%, as well as November's decline to 12.1% from 19.9%. Construction intentions for multi-family dwellings, which plummeted 21.0%, were the main reason for weaker performance in January. The Bank of Canada may not be done with lowering its benchmark interest rate just yet. Some economists believe that the central bank will lower borrowing costs at some point in 2016, while others expect the BoC to remain on the side-lines. Although bond markets are pricing out the chances of more monetary stimulus, the difference in forecasters' views highlights a number of uncertainties in the country's economic story. The Canadian Dollar has depreciated dramatically over the past two years, but it's unclear if the decline is sufficient to underpin manufacturing.
Australian consumer confidence dropped unexpectedly in March after reaching the highest level in four months in February as volatile financial markets dominated the news headlines. The Westpac-MI consumer sentiment index declined 2.2% to 99.1, with a reading below the 100 level indicating pessimists outnumber optimists. Three of the survey's five sub-indices deteriorated during the reported month with the sharpest decline registered in perceptions towards family finances compared to a year ago, which plunged 8.2%. However, expectations for the economic outlook over the next 12 months rose 8.2%, as last week's data showed the Australian economy outpaced economists' expectations by growing 3% in 2015. On a quarterly basis, the nation's economy grew 0.6% in the three months through December, driven by a solid 0.7% increase in private consumption, which contributed 0.4 percentage points to GDP growth. A separate report showed home loans in Australia declined more than expected in January, suggesting that the property market may lose some steam even despite record low interest rates. Loans dropped 3.9% month-on-month in January, following the 2.7% gain in December. A robust property market boom in Australia has been supported in recent years by low interest rates and a flood of foreign money, particularly from China.
Upcoming fundamentals: Two-day central bank rally begins on Wednesday
Even though market participants are predominantly focusing on the European Central Bank and its rate decisions on Thursday, today two other major policy-setting institutions will have their decisions announced. The Bank of Canada is first up at 15:00 GMT where the largest part of investors sees the regulator remaining on hold in terms of the key interest rate. BOC is under pressure of easing monetary policy further in the wake of dropping oil prices that are eliminating jobs from the industry and having negative influence on inflation in Canada. Currently the overnight rate stands at 50 basis points. Meanwhile, the Reserve Bank of New Zealand will publish the monetary policy statement at 20:00 GMT. Here the case is similar to that of the Bank of Canada. On top of weak inflation expectations, the RBNZ is estimated to stress low dairy prices and more valuable Kiwi as potential triggers of monetary easing in the upcoming future. However, today the official cash rate is forecasted to be kept steady at 2.50%.
Gold guided down by stronger Greenback
Ahead of the meeting of the European Central Bank the Dollar is broadly gaining ground across the board. This is putting downside pressure on gold for a second consecutive day on Wednesday. Despite that, we do not see any substantial losses and the price holds above the weekly pivot point of 1,251. A breakthrough here would neutralize our outlook on the bullion and we will see the February uptrend (1,233) back at risk of being penetrated. However, given positively-biased daily technical indicators and support lines at 1,228/23, a slide is unlikely to be long-lasting.Daily chart
XAU/USD is now nearing the 200-hour SMA in the one-hour chart. There at 1,247 we foresaw some bullish momentum yesterday and this outlook remains intact for the moment. In case the moving average fails to activate the bulls, there is another demand line placed just above 1,235 (late-February uptrend).
Hourly chart
SWFX sentiment is bearish in almost 60% of all cases
The difference between bullish and bearish OANDA and SAXO Bank traders has expanded since Tuesday morning, but the overall picture suggests that only a small number of their clients are changing hands during quiet market sessions. OANDA clients are bullish in about 57% of all cases (56% yesterday). The same is true for 53% of SAXO Bank participants, up from 51% about 24 hours ago.