- Bearish SWFX market participants hold to majority of about 20 pp over the bulls
- Key resistance is 1,280 where the bullion failed for three times over the past two weeks
- Both daily and weekly technical indicators are backing the positive outlook
- Economic events to watch over the next 24 hours: Euro zone Industrial Production (Jan); RBA Meeting Minutes; Bank of Japan Interest Rate Decision and QE; Japanese Industrial Production (Jan)
Gold rebounded on Monday, climbing closer to last week's 13-month high as the US Dollar remained under pressure ahead of the Fed's policy meeting. The Greenback traded at one-month low versus a basket of major counterparts amid expectations that the US central bank is likely to stand pat at the policy review this week. The precious metals market participants are also awaiting the Bank of Japan's meeting. Meanwhile, last week physical demand slowed in China, the world's top consumer of gold, while a strike by jewellers protesting against the imposition of a tax undermined demand in India, the world's second biggest gold consumer.
China's industrial production slowed to the weakest growth since the financial crisis, sparking concerns over the global recovery. Industrial output increased by 5.4% in January and February, the worst performance since 2008, according to the National Bureau of Statistics. Economists, however, had expected a slight retreat to a 5.6% gain from December's 5.9% annual growth. In addition to that, retail sales, which had been a driver of strength in China's economy, advanced 10.2% over the year, against economists' forecast for a 10.8% growth and well below the December growth rate of 11.1%. Recent data also revealed that China's exports plunged 25.4% in February compared with the same month last year. It was the biggest monthly drop since 2009. The weak production data suggest that the first-quarter growth could slide toward the bottom of Beijing's 6.5% to 6.7% target growth range for 2016 following economic growth of 6.9% in 2015, economists expect. A plethora of stimulus measures late last year and into 2016, including the most recent a 0.5 percentage point cut in bank reserves in January, have yet to reverse the lost in momentum. The PBoC also hopes that the stimulatory efforts by central banks in Europe and Japan, as well as a continued recovery in the US, will help to cushion China's growth.
Japan's core machinery orders advanced in January, driven by large orders from the steel industry despite lingering concerns about China's economic slowdown. Core machinery orders, which strip out ships and utility items, surged 15.0% month-on-month in January, according to Japan's Cabinet Office, much stronger than the 2.0% gain forecast by analysts and above the 4.2% increase in orders in December. On an annual basis, core orders surged 8.4%. The rise in machinery orders suggests businesses are expecting a recovery in demand after a lacklustre December quarter, when the world's third biggest economy shrank 0.3% due to a sharp decrease in private consumption. While many economists predict growth to have recovered modestly in the current quarter, the clouded outlook for global demand has prompted some to forecast another contraction that will push Japan back into technical recession, defined as two quarters in a row of shrinking gross domestic product. Expectations for further fiscal and monetary stimulus could remain elevated due to concerns that turbulence in overseas economies could hurt consumer sentiment. The Bank of Japan surprised investors in January with the introduction of negative interest rates, but the move has sparked concern that central bank is running out of tools to generate inflation.
Upcoming fundamentals: BOJ to keep interest rates on hold for now
There is a bunch of fundamentals released in the night between Monday and Tuesday, while European and American sessions of today are going to be pretty silent. The Bank of Japan is going to make its interest rate decision by 1:00 GMT on Tuesday. It introduced the negative interest rate of -0.10% for the first time ever last month, but now the regulator is not expected to go deeper into red. Although many economists foresee additional interest rate cuts later in the year. Meanwhile, the Reserve Bank of Australia will release the minutes of its most recent meeting at 0:30 GMT tomorrow.
Gold pulls back to reach 1,250
On Friday the bullion was out of power to hold to earlier post-ECB gains, as the price eased to the 1,250 mark from intraday peaks above 1,270. Nonetheless, the most important February trend-line remains intact and secured from additional bearish attacks. Future perspectives are moderately bullish and we are looking for the 1,280 mark to be finally confirmed. Looking back, three previous attempts to violate this level had been unsuccessful. Daily technical indicators continue supporting the idea of the advance, while only a slump as low as 1,230 (weekly S1) might destroy the positive forecast.Daily chart
XAU/USD started depreciating somewhat earlier than it had been initially anticipated, as the technical outlook had suggested the bullion would develop about $10 more to the upside before correcting lower. A decline extended through the 200-hour SMA (1,257), but the Feb-Mar uptrend remains intact near 1,245. As long as the latter is untouched, gold will have better chances to commence another leg up. A plunge below here would expose the Jan-Feb uptrend at 1,222.
Hourly chart