Gold depressed by more confident Greenback

Source: Dukascopy Bank SA
  • Difference between bullish and bearish traders dropped by 10 pp
  • Dollar is expected to build ground at the expense of gold, in case futures' markets continue projecting Fed rate hikes
  • Aggregate daily technical studies are not looking to the North any more
  • Economic events to watch over the next 24 hours: French CPI (Feb), Swedish CPI (Feb); US Retail Sales (Feb), PPI (Feb) and Empire State Manufacturing Index (Mar); New Zealand Current Account (Q4)

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The only major commodity to appreciate on Monday was corn, which added slightly more than one percent. Higher US Dollar is weighing on the majority of Greenback-dependent commodities, while fundamentals are fuelling a decline even more. Oil led the losers' part of the table, as Crude slid by 3.43% and Brent went down by more than 2%. Iranian oil minister declared on Monday that the country is not going to join other producers in freezing output, as ambitions of recovering post-sanctions output are outpacing the willingness to stabilize prices by limiting production instead. As for precious metals, they have posted a smaller decline in prices. They were spiralled down by boosted expectations that the Fed is going to hike in 2016, with probability of a December increase being close to 80%. For now the futures see a more than 50% chance of any move starting from June 2016.

Gold declined for a third trading session in a row on Tuesday, hitting the lowest level in almost two weeks, with market participants closely watching policy meetings of the US and Japan's central banks. The Bank of Japan kept monetary policy unchanged, after adopting a negative interest rate strategy in January in a bid to underpin inflation and create a virtuous spending cycle. The central bank offered a bleaker view on the world's third biggest economy and warned of waning inflation expectations, noting that global headwinds may justify introducing more stimulus ahead. The Fed's two-day policy meeting will kick off on Tuesday and be watched for clues on the future pace of U.S. rate hikes. Meanwhile, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported its holdings declined 1.08 % to 790.14 tonnes on Monday from 798.77 tonnes on Friday.

The Bank of Japan kept monetary policy unchanged, after adopting a negative interest rate strategy in January in a bid to underpin inflation and create a virtuous spending cycle. The central bank offered a bleaker view on the world's third biggest economy and warned of waning inflation expectations, noting that global headwinds may justify introducing more stimulus ahead. In line with expectations, the BoJ kept its pledge to expand base money at an annual pace of 80 trillion yen. It also left unchanged a 0.1% negative interest rate it applies to some reserves parked by financial institutions at the central bank. The BoJ said exports and production has been weak due to the effects of the slowdown in emerging economies and said that China posed a risk to the outlook for Japan. The BoJ also revised down its estimate of inflation expectations to say they were "weakening recently," acknowledging that one of the key channels of its massive stimulus programme was not working as well as hoped for. Meanwhile, Japan's industrial output index posted a strong result on a monthly basis at the beginning of the year, revealing a robust recovery in Japan's factories over January compared with the last month in 2015. Industrial production jumped 3.7% month-on-month in January, the Ministry of Trade, Economy and Industry reported.


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.

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Upcoming fundamentals: US retail sector to expand slower in February



In January retail spending in the world's most powerful economy skyrocketed after a quite weak December pre-holiday session. Consumers continue driving the US expansion much forward, but the pace of retail sales' increase is estimated to slow down in the second month of 2016. The mean forecast stands at -0.1% for a monthly change of the headline reading. On the core basis, which excludes automobile purchases, the indicator is projected to weaken by 0.2%. Apart from retail sales, the producer price index is also up at 12:30 GMT. Economists foresee a decline in producer prices of 0.2% on a month-to-month basis in February. Alongside, the Empire State Manufacturing Index is going to be published at the same time with all previous indicators. It is expected to hold below zero at -10.3 points in March, a sign that conditions in the production sector of New York State are worsening, rather than improving.


Gold depressed by more confident Greenback

Unexpectedly high bets on rate increases from the US Federal Reserve later in the year pushed the yellow metal noticeably down against the American currency. The February uptrend was tested for the first time since early March and now the 20-day SMA and weekly S1 are at risk of being violated. A slump under the 1,230 level should expose the monthly pivot point at 1,205. Daily technical indicators are not signalling to the upside any more, while trading volume dipped to the lowest level since Feb 15. It may add to increased market volatility in the foreseeable future.

Daily chart
© Dukascopy Bank SA

Judging from the 1H chart for gold, expectations are quickly worsening every single moment. The late-February uptrend at 1,237 failed to contain the selling momentum. The focus is now turning to the January-February uptrend, which is placed only within six dollars from the current spot (1,230) price. In case this demand is breached, we cannot rule out another long-term round of losses in the direction of the October 2015 low at 1,104.

Hourly chart
© Dukascopy Bank SA

Sentiment improves, but still mostly favours a slide

The negative gap between traders, who are looking for gold's downside tendency and those who are betting on an increase, narrowed to ten percent over the previous working day. This is down from 16 pp just after the weekend. It is also the highest bullish share (45%) in almost two weeks. Meanwhile, OANDA and SAXO Bank differences between two types of market participants are similar to that of the SWFX market, although the majority is maintained by the bulls.
















Spreads (avg,pip) / Trading volume / Volatility


Market participants foresee the price of gold at 1,280 by the end of June

Traders who were asked regarding their longer-term views on gold between Feb 15 and Mar 15 expect, on average, to see the metal around 1,280 by the end of June 2016. At the same time, 63% of participants believe the price will be generally above 1,250 in ninety days. Alongside, only 23% of those surveyed reckon the price will trade in the range between 1,100 and 1,250 over the next three months.

© Dukascopy Bank SA

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