- SWFX bearish traders are managing to maintain a 14 pp lead over bullish market participants
- Another turbulent session is highly possible, as Janet Yellen speaks to US Senate Banking Committee
- Technical indicators on a daily time frame remain broadly mixed on gold
- Economic events to watch over the next 24 hours: US Unemployment Claims (Feb 6); Fed Chair Yellen Testifies (Day 2); Swedish Riksbank Interest Rate Decision; Eurogroup Meetings; RBA Governor Stevens Speaks
Gold soared to the highest level in more than eight months on Thursday, amid investors' belief that the Fed would find it difficult to raise US interest rates this year, while safe-haven demand in light of a plunge in equities and the US Dollar also supported the precious metal. While addressing Congress, Fed Chair Janet Yellen said that the central bank is unlikely to reverse its plan to hike interest rates further this year. Yellen stressed that even after the December increase, the stance of monetary policy remains accommodative. The actual path of the federal funds rate will depend on incoming economic data.
While addressing Congress, Fed Chair Janet Yellen said that the central bank is unlikely to reverse its plan to hike interest rates further this year. Yellen stressed that even after the December increase, the stance of monetary policy remains accommodative. The actual path of the federal funds rate will depend on incoming economic data, and policy makers regularly reassess what level of the federal funds rate is consistent with reaching and maintaining maximum employment and 2% inflation. Yellen welcomed the progress the US economy made toward the central bank's objective of maximum employment. However, Yellen highlighted that while labour market conditions improved substantially, there was still room for further sustainable improvement. With regards to inflation, the Fed Chair said even though inflation is expected to remain low in the near term, partly due to further declines in energy prices, the FOMC expects that inflation will climb to its 2% objective over the medium term. However, financial conditions in the US have recently become less supportive of growth. "These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset. Foreign economic developments, in particular, pose risks to US economic growth."
The UK retail spending growth hit the highest level in four month in January, as consumers bought more big-ticket items like furniture. The British Retail Consortium reported retail sales values jumped 3.3% last month compared with a year ago, up from a 1.0% gain in December. Furniture and home appliances were the top performers, while discounts in the New Year sakes boosted clothing and footwear sales. The report added to signs that Britons continued to spend freely, despite a gloomier global economic outlook. The Bank of England revised down its short-term outlook for both inflation and economic growth, referring to external and domestic headwinds as well as low price pressures and the major factors weighing down on the UK economy and production. A separate report showed Britain's trade deficit widened in the final quarter of 2015 amid global market turmoil and a slowdown in emerging markets that hurt British exports. The gap between exports and imports increased from 8.6 billion pounds in the September quarter to 10.4 billion pounds, sparking concerns that UK's worsening trading position would be a drag on the economy's growth this year. Moreover, the UK's goods trade shortfall with the rest of the world widened by 1.9 billion pounds to a record high of 125 billion pounds in 2015. However, 2015 saw a record surplus in the UK's dominant services sector of 90 billion pounds.
Upcoming fundamentals: Yellen, Riksbank and RBA's Stevens
There are plenty central bank events scheduled for Thursday. At first, the interest rate decision will be made by the central bank of Sweden, the Riksbank, at 8:30 GMT. Markets suggest the regulator will keep the benchmark Repo rate unchanged at -35 bps, even though some analysts see another cut today. Alongside, Fed Chair Janet Yellen will continue testifying before US Congress for a second day and will speak to the Senate at 15:00 GMT. As for the Reserve Bank of Australia, its governor Glenn Stevens will also talk about economics to the lower house of Australian Parliament at 22:30 GMT.
Gold aims at violating weekly R2 at 1,213
Gold prices soared again on Wednesday, underlying heavy demand for haven assets in time of global economic uncertainty and dovishness of Fed Chair Janet Yellen. Yellow metal could consolidate above 1,200 for the first time since June on Thursday, after it has climbed 14% so far in 2016. The key resistance remains intact, but we expect those monthly R3 and weekly R2 at 1,209/13 to be properly tested over the next 24 hours. By closing above here the metal will be a good position to move up to May 2015 high 1,232.Daily chart
June high of the last year is being tested by gold at the moment. Until this week the metal broadly respected the 200-hour SMA, currently at 1,158. However, the spread between the moving average and the spot has widened to $48, meaning some correction lower is possible. Otherwise, XAU/USD is at risk of becoming overbought quite soon.
Hourly chart
Bullish market share is unchanged at 43%
While OANDA traders remain short on the precious metal in just above 51% of all cases, SAXO Bank clients decided to put more bets on a climb during the trading session on Wednesday. Therefore, SAXO Bank sentiment became almost 55% positive on the bullion, even though yesterday only 52% of their traders shared similar views on the matter.