Gold stops the post-Brexit surge on Tuesday

Source: Dukascopy Bank SA
  • 54% of all SWFX open positions are bearish
  • Prices dropped to 1,315 level
  • Gold surged on release of the UK Referendum results
  • Price to be supported by the 2015 high at 1,307/05
  • Economic events to watch over the next 24 hours: EU Economic Summit; ECB President Draghi Speaks; EU Parliament to Vote on Resolution on UK Referendum; ECB's Coeure Speaks; German Chancellor Merkel Speaks; ECB's Praet Speaks; US GDP (Q1); US PCE (Q1); US PCE Price Index Ex Food, Energy (Q1); US Consumer Confidence (June)
The bullion surged on the publishing of the UK Referendum on the EU membership, as the results came in at 51.9% for leave. Due to that, investors and traders flocked to safe investments, as gold and the Japanese Yen gained strength. In the meantime, oil lost value, as Crude and Brent fell, and on Monday they were respectively at $47.7 and $48.58. Regarding the yellow metal, investors await the results of the European Parliament on the UK Referendum results today.

Activity in the US services sector remained tepid in June, suggesting that the economy's underlying rate of growth remains lowly and that a rate hike may not be on the cards too soon. In a report, market research group Markit said that its flash services purchasing managers' index remained unchanged at 51.3 in June for the second month, falling short of expectations for a rise to a reading of 51.9. Although it remained above the 50.0 mark that separates contraction from expansion, it was well below the long-run survey average of 55.6. Meanwhile, an increase in the amount of goods flowing into the US in May likely reduced the extent to which trade will boost economic growth in the second quarter. A separate research showed that the deficit on trade with goods widened to $60.6 billion in May, compared to a $59.4 billion gap projected by analysts. Last month's reading follows a $57.5 billion trade shortfall in April, fresh numbers from the Department of Commerce reported. It turns out that exports were soft in May and imports rose. US exports inched down 0.5% to $119 billion. Imports increased 1.4% to $179.6 billion, the highest level so far this year. The rise in in-bound shipments largely reflected greater volumes of industrial supplies and consumer goods.

On Friday the US Durable and Core Durable Goods Orders were released, both failing to meet expectations. The Durable Goods Orders dropped 2.2% in May, while the forecast stood at a 0.5% decline. At the same time, the April's reading was revised down from 3.4% to 3.3%, contributing to the negative effect the actual weak reading had. Furthermore, the Core data, which excludes the transportation sector, also disappointed, having edged lower fro, 0.5% to –0.3%, compared to the 0.1% forecast. Nevertheless, the main reason of the depressing results was exactly the transportation sector, as it plummeted 5.6% during the previous month. As a result, weakness in these factory orders justify Janet Yellen's concerns of possible economic threats the US might be facing. She stated on her testimony earlier that week that not only falling oil prices, but also weak business investments are an issue for the US economy. Moreover, due to the relatively poor reading of the US Manufacturing PMI last Thursday, which showed that demand for manufacturing and drilling equipment was lower, the factory orders are unlikely to post significantly better numbers in the next few months. On top of that oil prices plunged even further, amid UK leaving the European Union, creating only more problems not only for the US, but for the global economy overall.

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Upcoming fundamentals: US data and Brexit future

Since the release of the UK referendum results, gold has been affected even more by politics in the EU, than it is usually affected by US data, as uncertainty about the UK and the EU increases the risk off sentiment in the markets. Because of that, on Tuesday there are a lot of events and data releases, which could affect gold prices, as annualized GDP and PCE for first quarter of 2016 will be released at 12:30 GMT. In addition, US Consumer Confidence for June is set to be published at 14:00 GMT. In the meantime, it is the first day of the two day EU Economic Summit. The summits main topic is the UK's referendum on European Membership. First of all, ECB President Mario Draghi is set to speak at 8:00 GMT. Later in the day ECB's Coeure and Praet will give speeches respectively at 8:30 GMT and 11:00 GMT. In the meantime the German Chancellor Merkel will give a speech at 8:30 GMT, and the EU Parliament will convene and extraordinary plenary session to vote on a resolution analysing the outcome of the UK referendum.



Gold stops the surge in Brexit aftermath on Tuesday

Daily chart: After skyrocketing, as a safe investment, on UK referendum on European Union membership results, gold continued to surge on Monday. However, the yellow metal has changed its direction on Tuesday, as it declined from the levels around 1,325 to 1,315. The decline in the bullions value is most likely due to the aftermath of the Brexit shock, as market participants are starting to calm down and return to riskier investments. However, aggregate daily technical indicators forecast a surge for the metal for today.

Daily chart
© Dukascopy Bank SA

Hourly chart: The hourly chart shows that the bullion touched the upper BB around 19:00 GMT yesterday, and afterwards the metal started losing value. Around midnight the yellow metal struggled for a few hours with the support put up by the 20-hour SMA at 1,324.35. However, as it broke through it, gold reached the 55-hour SMA at 1,317.72 and passed it without any struggle. At the moment, the commodity is at 1,317.84, which is just below a newly formed strong resistance point at 1,320 made up of the 20 and 55-hour SMAs.

Hourly chart
© Dukascopy Bank SA


SWFX traders continue bearish sentiment

SWFX traders have increased their long position count by 3%, as 46% of all open positions are long on Tuesday morning. In the meantime, pending orders in the 100-pip range are 71% short.

Meanwhile, OANDA Bank clients are bullish with respect to the bullion, precisely in 63.81%. In addition, SAXO bank clients are also bullish on the yellow metal, as 55.67% of positions are long.

Spreads (avg,pip) / Trading volume / Volatility


Market participants foresee the price of gold at 1,275 by the end of August

Traders who were asked regarding their longer-term views on gold between May 28 and June 28 expect, on average, to see the metal around 1,275 by the end of August. Generally, 64% of participants believe the price will be generally above 1,250 in ninety days. Alongside, 28% (-2%) 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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