Gold trades at monthly lows post-FOMC

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Source: Dukascopy Bank SA
  • 68% of all SWFX positions are short
  • Futures may correct higher on Thursday, while staying within the channel down pattern
  • Daily technical studies continue pointing sideways
  • Economic events to watch over the next 24 hours: Euro zone (Mar); US Unemployment Claims (May 14) and Philadelphia Fed Manufacturing Index (May); FOMC Members Fischer and Dudley Speak; UK Retail Sales (Apr)

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Oil markets were shocked by increasing US inventories, after the data from the Energy Information Administration was released on Wednesday. Earlier reports had said the stockpiles were set to decline. However, the scope of prices losses in the aftermath of the information received was not tragic. Brent lost only 0.71% and Crude was down just 0.25%, given that US oil production has plunged to the lowest level in 20 months and managed to support the bulls. The markets could in turn notice a much more formidable decline in terms of precious metals futures. With silver plummeting 2% and gold losing 1.6%, these two components were the second and third worst daily performers, respectively. As for the main reason of these abrupt changes, the Greenback skyrocketed after the release of the Fed's meeting minutes. They showed growing support among FOMC participants in favour of a rate hike in June.

Gold was trading near the lowest level in three weeks on Thursday after minutes from the Fed April meeting showed that officials believed the US economy could be ready for another interest rates hike in June. Fed officials said recent economic data made them more confident inflation was climbing toward the 2% target and that they were less concerned about a global economic downturn. Data since the end of April pointed to an increase in consumer spending and manufacturing output, supporting the view that economic growth was gaining momentum after stalling in the first quarter.

Japan's core machinery orders increased more than expected in March but firms predict orders to drop in the current quarter as companies become increasingly cautious due to a surging Japanese Yen and weakness in overseas economies. Core orders, a leading indicator of business investment, surged 5.5% from the previous month, stronger than a 0.7% increase expected by economists. On a an annual basis, core orders surged 3.2%. For the quarter, core orders gained 6.7% in the three months to March from the previous quarter, but are predicted to decline 3.5% in the April-June period. The projected fall in machinery orders in the second quarter comes amid concerns that the appetite for investment will wane due to the likelihood of slower global growth. Business investment has been moderately improving in the past few years but is yet to return to levels seen prior to the global financial crisis despite efforts by Prime Minister Shinzo Abe to urge firms to spend more for future growth. Policy makers are relying on an increase in capital expenditure to boost gains in productivity, create new jobs and increase wages. Gross domestic product data for the first quarter showed household spending lacked strength and capital expenditure declined, a worrying sign that domestic demand could falter.


Australia's economy added jobs in April and the unemployment rate held at the lowest level in more than two years as the number of people in part-time roles increased. According to the Australian Bureau of Statistics, the jobless rate was unchanged at 5.7% in March, beating economists' expectations for a rise to 5.8%. A net 10,800 jobs were added to the economy last month, missing analysts' expectations of a 12,000 net increase and compared with a revised 25,700 in March. However, Australia's labour force participation rate unexpectedly fell last month, from 64.9% in March to 64.8%. Additionally, a report showed wages climbed 0.4% in the March quarter, for an annual increase of 2.1%, the lowest annual rate since the data series began in 1997. The RBA this week said that data suggested employment would continue to increase, albeit at a somewhat slower pace than over the previous year. Australia's unemployment rate is predicted to remain around 5.8% in 2016, according to the RBA's May Statement on Monetary Policy, before dropping at the end of the forecast period when GDP growth is expected to pick up. For now, stubbornly low inflation is the central bank's bigger concern. In the March quarter Australia's headline inflation rate slowed from 1.7% to 1.3%, but more importantly, core inflation also declined sharply, triggering the RBA's interest rate cut on May 3.

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Upcoming fundamentals: Fed policymakers to speak as June meeting starts looming



Today two members of the Federal Open Market Committee are going to talk throughout the US session, just after the Federal Reserve released its meeting minutes yesterday. The central bank has pointed to a higher possibility of the June rate increase and the speakers are expected to continue driving market expectations towards that decision. Fed Governor Stanley Fischer will talk at the New York Fed at 13:15 GMT. In the meantime, New York Fed President William Dudley will participate in a press conference about macroeconomic trends at 14:30 GMT.


Gold trades at monthly lows post-FOMC

Yesterday the precious metal performed a substantial sell-off on the back of growing American Dollar. Gold slumped below the weekly pivot point and 20-day SMA to close just above the first weekly support at 1,258.50; however, it managed to set a fresh May low. By successfully testing the weekly S1 the bullion will be in a position to attack the 55-day SMA, which lies at 1,250.36. On the other hand, technical signals are largely mixed and suspect there is room for an upside correction. Within the bearish channel, which emerged in the daily chart, a spike may extend as high as 1,279.

Daily chart
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Two major support zones, namely the 200-hour SMA at 1,271.91 and the May 10-17 uptrend at 1,271, were both eliminated by the heaviest downside pressure in two weeks. By closing below them the yellow metal has destroyed recovery hopes and further losses seem to be on the table right now.

Hourly chart
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Bullish market portion returns to 32%

Only slightly more than three out of ten SWFX market participants are anticipating that the yellow metal will appreciate, while the rest of the board is forecasting losses in the foreseeable future. On a daily basis the number of long positions regained two percentage points the bulls had lost two days before.

Meanwhile, OANDA clients are overwhelmingly positive with respect to gold, precisely in 63% of all cases in the morning on Thursday. On top of that, SAXO Bank's market share among long clients skyrocketed to 60% today from only 51.5% yesterday.
















Spreads (avg,pip) / Trading volume / Volatility


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

Traders who were asked regarding their longer-term views on gold between April 19 and May 19 expect, on average, to see the metal around 1,280 by the end of August. Generally, 55% (-3%) of participants believe the price will be above 1,250 in ninety days. Alongside, 31% (-1%) of those surveyed reckon the price will trade in the range between 1,100 and 1,250 over the next three months.

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