- Only 52% of all SWFX positions are short
- Traders to wait for Fed Janet Yellen's speech on Friday; hawkish surprises are probable
- Daily technical indicators are mixed
- Economic events to watch over the next 24 hours: Spanish GDP (Q1); Italian Retail Sales (Mar); FOMC Members Bullard and Powell Speak; US Durable Goods Orders (Apr) and Pending Home Sales (Apr); UK Second Estimate GDP (Q1); Japanese National CPI (Apr)
Gold climbed for the first time after posting loses for seven trading sessions in a row as traders covered short positions. The buying sentiment was also supported by weakening of the US Dollar and a rally in crude prices. The Dollar index fell 0.2% to 95.157, sliding from a two-month high of 95.661 reached in the previous session. Brent oil futures rose above $50 a barrel on Thursday for the first time in nearly seven months.
The US crude inventories dropped last week, posting the biggest weekly decline in seven weeks, due to the falling import, which forced refiners to cut output. According to the Energy Information Administration, the report showed a 4.2 million-barrel plunge in crude supplies last week, which was a sharper decrease than the 2.5-million fall based on analysts' expectations. The report also showed a surprising rebound in supplies from Canada, as weekly imports reached 3.09 million bpd, from the previous week's 2.59 million bpd, despite Canadian oil sands shutdowns amid a massive wildfire. A series of outages around the world, such as wildfires in Canada and a spate of violence in Nigeria, the oil-producing region, has helped cut global oil supply by nearly 4 million barrels per day this month. This data suggested a bullish sign for oil prices and the US crude oil went up to its highest level in seven months. As a result, the US crude futures hit a high of $49.62 a barrel while Brent crude, in turn, was 65 cents higher at $49.26 after touching $49.69 after the report. Moreover, crude has almost doubled from 12-year lows seen in January on the belief that the market will start to rebalance as supplies of high-cost oil decline and rising consumption by motorists and other oil users reduces a global surplus.
The Bank of Canada announced that it decided to keep its target for the overnight rate at 0.50%, indicating that a strong start to the year will disappear quickly on the background of the weak second quarter results. Meanwhile, the Bank Rate remained correspondingly at 0.75% and the deposit rate was at 0.25%. The central bank emphasised the negative effects of wildfires that engulfed the western province, Alberta, in May, bringing a lot of disruption and temporarily holding back oil production. According to the Bank of Canada forecast, the economic damage caused by the wildfires will cut around 1.25 percentage points from the real GDP growth in Q2. This is on top of the previous downward revision to 1% from 2.2% back in April. Situation, however, is looking better in the third quarter, as oil production is projected to resume and fire-damage repaired. Meanwhile, the Bank highlighted that the Canadian housing market continues to display strong regional divergences, reinforced by the complex adjustment underway in the economy. In this context, household vulnerabilities have moved higher. At the same time, inflation does not seem to be a big issue for the Bank of Canada right now, as it is roughly in line with the Bank's expectations. More specifically, the total CPI inflation has risen recently, largely due to movements in gasoline prices, but remained slightly below the 2% target.
Upcoming fundamentals: Durable goods report to shed first light on Q2 US GDP performance
US economic calendar will begin with bringing the durable goods data to the market at 12:30 GMT. This indicator gained 0.8% on a headline basis in March and declined 0.2%, when excluding transportation items. In April both gauges are estimated to grow by 0.5% and 0.3%, accordingly. Positive or negative numbers will definitely feed into economic growth data in the second quarter when economists foresee a rebound after weak Q1 expansion in the world's largest economy. Alongside, weekly jobless claims are up at the same time along with the durable goods. Federal Reserve Bank of St. Louis President James Bullard and a voting FOMC member in 2016 will talk about monetary policy and economy in Singapore at 10:10 GMT later today. Following him, Fed Governor Jerome Powell will speak on the same topics in Washington at 16:00 GMT. As both of them are voting for monetary policy decisions in 2016, the level of importance of their speeches is relatively high.
Gold sees rising upside risks from 100-day SMA
Daily chart: Prices of gold continued to slide down for the sixth consecutive day on Wednesday. However, after probing the 1,218 mark, which is placed just above the weekly S2 and 100-day SMA, the bullion decided to pull back and finish the session at 1,223. Risks of an upward correction are growing, as the mid-term moving average line has a strong northbound slope and will likely weigh on the futures in the days to come. If XAU/USD regains the 1,234/35 level (weekly and monthly S1s), the probability of more gains will surge. At the same time, daily indicators remain mixed with respect to the yellow metal.Daily chart
Hourly chart: In case we observe the downward trend-line at 1,235 holding an initial test in the next 24 hours, then the bullion will be expected to renew a sell-off with the main aim to set a fresh eight-week low below the 1,218 marker reached yesterday. From the topside, however, any advance will be expected to find its first resistance in face of the 200-hour SMA, currently at 1,254.90.
Hourly chart
Bullish market portion soars to 48%
Meanwhile, OANDA and SAXO Bank clients are overwhelmingly positive with respect to gold, precisely in 69.15% and 61.29% of all cases in the morning on May 26.