- Bullish-bearish gap has tightened to six percentage points
- Main support is now offered by 200-day SMA at 1,128; first resistance area is located at 1,143/47
- Aggregate daily indicators remain mostly undecided
- Economic events to watch over the next 24 hours: ECB President Draghi Speaks; ECB Member Mersch Speaks; US Unemployment Claims (Jan 30), Unit Labour Costs (Q4), Natural Gas Inventories (Jan 29) and Factory Orders (Dec); Bank of England Interest Rate Decision, Meeting Minutes and Inflation Report; Bank of England Governor Carney Speaks; Australian Retail Sales (Dec)
Gold traded near a three-month high on Thursday, supported by strong Chinese demand ahead of the Lunar year, buying by central banks, renewed weakness in the US Dollar and global headwinds, which could make it challenging for the Fed to hike interest rates in the near term. Holdings of top gold-backed exchange-traded fund, SPDR Gold Trust, continued to increase, standing at 22.19 million ounces on Wednesday, the highest level since late October. Investors' attention now turns to Friday's US non-farm payrolls data.
Even though the private sector hiring rose at a slower pace, the US private companies continued to add a robust number of jobs to the economy in January. Employers created 205,000 jobs last month compared with 267,000 in December, according to ADP Research Institute. Economists, however, had predicted a 195,000 advance. The data came ahead of the government's more comprehensive report on Friday. Economists predict that the report will show employers added 200,000 jobs and the jobless rate remained at 5.0%. Robust hiring numbers contrast with weak data on the overall economy, which grew at just a 0.7% annual rate in the final quarter of last year. Economists foresee growth figures will improve in the current quarter. The world's number one economy has been hit hard by a strong US Dollar, weakening global demand and an inventory de-stoking, which have pressured manufacturing and export industries. A separate report showed business activity in the dominant services sector slowed to the lowest level in almost two years in January, suggesting the economic growth faltered at the start of the first quarter. According to the Institute of Supply Management, the index of non-manufacturing activity dropped to 53.5 last month, the lowest level since February 2014, down from 55.8 in December.
Activity in China's services sector rose to the highest level in six months in January, underscoring a growing divergence with the manufacturing sector that continues to falter and indicating that the government's measures is working in some parts of the economy. The Caixin China services PMI climbed to 52.4 in January, up from 50.2 in the preceding month. A reading above the key 50-mark threshold shows expansions, while below indicates contraction. The expansion was underpinned by inflows of new business accelerating to their strongest in three months, according to the report. The pace of job creation at service providers quickened to a six-month high, with some firms planning company expansion. The report showed service providers were generally optimistic about business in the coming year, with the overall degree of positive sentiment rose to its highest level since July 2015. China's service sector has been one of the few bright spots in the economy, helping to offset a sharp slowdown in traditional manufacturing industries. In 2015, services accounted for 50.4% of China's gross domestic economy, up from 48.1% in 2014. China's official nonmanufacturing purchasing managers' index, which includes the construction sector, slid to 53.5 in January from 54.4 in December, according to data from the National Bureau of Statistics. The Caixin China Composite PMI, which covers both manufacturing and services, edged up to 50.1 in January from 49.4 in December, signalling a stabilization of business activity.
Upcoming fundamentals: This is Super Thursday!
All market attention is most probably going to be paid solely to the Bank of England on February 4. Once in three months the regulator is publishing its quarterly Inflation Report, while monetary policy decisions are followed by Mark Carney's press conference 45 minutes later. British central bank is now estimated to keep interest rates low for a prolonged period of time, given that recent market turmoil and Chinese weakness might derail future UK economic growth. One member of the MPC is, however, still seen as the sole dissenter to the decision of maintaining the benchmark interest rate flat at 0.50%. Earlier last year the BOE had turned increasingly dovish, a move which is building some ground for a rate cut, rather than a hike any time soon. Separately, MPC members have recently expressed their personal concerns about growth and inflation outlook.
Gold awaits consolidation above 200-day SMA
American currency weakened across the board yesterday, while pushing safe-haven prices further to the upside. XAU/USD penetrated 200-day SMA for the first time since October, while nearing the first monthly resistance at 1,143. This supply is strengthened by weekly R2 and 2015 downtrend at 1,145/47. A climb above them will shift our attention to the May-Oct trend-line at 1,164. Alongside, ability to fix gains above 200-day SMA on Thursday will proclaim that bullish sentiment is strong. As for daily aggregate technical indicators, the signal is maintaining a mixed stance today.Daily chart
Some time ago we had mentioned that market risks for gold were skewed to the upside. Indeed, the yellow metal surged past the January uptrend in the 1H chart. Prices were underpinned by 200-hour SMA (1,120), which is quickly heading in the direction of the current spot of 1,142. Initially we are looking at the 1,147 mark, namely a three-week uptrend line. The medium-term target is August 2015 high at 1,170.
Hourly chart