- 67% of all SWFX positions are short (64% on Friday)
- Long traders are setting eye on 2015 high at 1,307.06 where heavier bearish impetus is expected
- Both daily and weekly technical indicators are pointing to the upside
- Economic events to watch over the next 24 hours: Euro zone Final Manufacturing PMI (Apr); Bundesbank President Weidmann Speaks; US ISM Manufacturing PMI (Apr); ECB President Draghi Speaks; FOMC Members Lockhart and Williams Speak; SNB Chairman Jordan Speaks; RBA Interest Rate Decision; Australian Building Approvals (Mar)
Gold traded near a 15-month high on Monday as a decline in the US Dollar and weakness sin global equities sent the precious metal to near $1,300 an ounce. Last week the greenback experienced its biggest weekly percentage drop versus the Japanese Yen since the 2008 financial crisis following the Bank of Japan's decision not to ease policy further. Bullion was also supported by weak US fundamentals that supported the Fed's cautious approach to higher interest rates.
Canada's economy contracted for the first time in five months in February, as the manufacturing, mining and energy sectors all shrank. Canada's gross domestic product edged down 0.1% to 1.67 trillion Canadian dollars in February after advancing 0.6% in January, Statistics Canada reported. The wholesale trade, which dropped 1.8% in the reported month was the biggest contributor to the overall decline in February economic output. The manufacturing sector, which policy makers expect to benefit from the relatively weaker Canadian Dollar and US economic growth, decreased 0.8% in February, led by a steep fall in transportation equipment. It was the sector's first decline in four months. After dropping sharply in 2015 and early 2016, the Canadian Dollar has regained some of its strength recently and is now trading at close to 80 US cents. Even with the monthly decline, first-quarter GDP growth is likely come in at 3.4%, which would be the most since 2014. Meanwhile, on an annual basis, the Canadian economy grew 1.5%. Canada's liberal government, led by Prime Minister Justin Trudeau, said it will increase infrastructure spending and introduce new tax measures, which it projects should increase economic growth by 0.5% in the 2016-2017 fiscal year, and by 1% the following year. Bank of Canada Governor Stephen Poloz called those estimates feasible.
Orders to US factories for long-lasting manufactured goods increased less than expected in March, while a key category that tracks business investment plans remained weak for a second month. The Commerce Department reported orders for durable goods, items meant to last three years or more, climbed 0.8% last month following a downwardly revised 3.1% decrease in February. Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged after a downwardly revised 2.7% decline in the prior month. Manufacturing, which makes up 12% of the US economy, is faltering due to the lingering effects of the Dollar's past strength and weak overseas demand. Prospects for 2016 remain uncertain. Some economists believe that factories should see an increase in demand since the Greenback has stopped rising versus other currencies. The global economy also seems to have stabilized after a shaky start to the year. However, other analysts are uncertain about how long it might take for manufacturing to rebound. Meanwhile, the mood among American shoppers surprisingly fell in April. The Conference Board's measure dropped to 94.2 in April from a downwardly revised 96.1 in March. The present-situation index advanced to 116.4 in April from 114.9 a month earlier, while the expectations index declined to 79.3 from 83.6.
Upcoming fundamentals: Lockhart and Williams speak, RBA decides interest rates
At 12:50 GMT in the afternoon on Monday the Atlanta Fed President Dennis Lockhart is going to take stage at an annual Financial Markets Conference in Florida. His colleague from San Francisco Fed John Williams is going to talk at 21:30 GMT. Even busier trading session is expected in the Asia-Pacific region later today and tomorrow morning, measured by GMT time. At 4:30 GMT tomorrow morning the Reserve Bank of Australia is going to make an interest rate decision. Although financial markets are estimating no changes to the current 2.00% key interest rate, bets are being increasingly tilted towards a cut in the wake of recent soft inflation data from Australia.
Gold at 15-month peak as haven demand surges
On Friday gold prices were a subject to the sharpest rally since mid-March. Daily increase, which amounted to more than 2%, brought the spot to the 1,292.10 mark by session-end, up from 1,232.66 last Monday. Considering continuous weakness of the Greenback, climbing haven demand and bullish technical indicators, we are not ruling out a testing of the 1,300 major psychological mark, followed by the 2015 high at 1,307.06. The fresh monthly pivot is expected to contain any short-term loss at 1,265.92. Volatility will likely remain uplifted for some period of time.Daily chart
In the 1H chart, XAU/USD soared beyond the March-April trend-line, thereby fully exposing the 2015 high at 1,307.06. Futures spiked above the March high to increase the likelihood of near-term rallies even more. We are closely monitoring the previous year's highest level, because it is quite probable that the bullion will face some bearish pressure up there.
Hourly chart
Take-profit trades push bullish market share further down
Percentage of long positions continued to diminish in the OANDA market where it tumbled to about 52% from 55% on Friday and 59% on Thursday of the last week. In the meantime, SAXO Bank sentiment stabilised at 43/57% in favour of the bears.