- Price drop forced elimination of long market positions from 62% to 59%
- Markets are setting eye on 1,044 (2010 low), but one-hour chart assumes a recovery will take place
- Daily technicals improved and expect no change throughout the next 24 hours
- Economic events to watch in the next 24 hours: Spanish CPI (Nov); German ZEW Economic Sentiment (Dec); US CPI (Nov) and Empire State Manufacturing Index (Dec); Swiss Producer and Import Prices (Nov); UK CPI (Nov); BOE Quarterly Bulletin; Canadian Manufacturing Sales (Oct); BOC Governor Poloz Speaks; New Zealand Current Account (Q3); RBNZ Inflation Expectations (Q1)
Gold struggled on Tuesday and looked vulnerable to a bounce back to multiyear lows as the Fed's first rate hike in almost a decade is looming. The US central bank starts its last policy meeting of the year later in the day. At the end of two-day gathering, the Fed is widely expected to deliver an interest rate hike for the first time since June 2006. Gold has already plunged 10% for the year, marking its third straight annual decline, in anticipation of higher rates.
The Reserve Bank of Australia painted a rosier picture of the nation's economy and seemed in no rush to deliver another interest rate cut. The central bank said low borrowing costs are supporting household spending, while weaker exchange rate is aiding companies, even as it repeated the view that a subdued inflation outlook gives scope to ease monetary policy further, if growth slows. During the last board meeting, the RBA kept the official cash rate at a record low level of 2% for the seventh month in a row, after lowering rates twice this year, in February and May.
The RBA noted robust employment growth and survey showing above average conditions for companies. October's labour data surpassed even the most upbeat forecasts, with job growth soaring by 56,100, pushing the unemployment rate to 5.9%, down from 6.2%. Australian firms in industries such as tourism, education and manufacturing have been aided by a 30% plunge in the Australian Dollar since the beginning of 2013. The central bank is also waiting for the Fed's rate decision later in the week, when policy makers are expected to start normalizing its monetary policy for the first time in almost a decade, potentially exerting a downward pressure on the Australian currency as a rate differential narrows.
Upcoming fundamentals: UK consumer prices to be back into green in November
There are many important events happening in course of the second working day of this week. Inflation data will dominate during the next 24 hours, as we have this type of statistics being published in the UK and US. Consumer prices in Britain are estimated to grow by 0.1% in November, up from -0.1% in October on the back of waning negative impact from oil price decline, which started in the summer last year. Core CPI, which excludes energy prices, is projected to increase from 1.1% to 1.2%, but it will remain below the BOE target rate of 2%. Apart from UK and US, there is also a bunch of data to be released in Canada on Tuesday. Separately, manufacturing sales are likely to have continued weakening in October by 0.4% after a drop of 1.5% a month before. Meanwhile, the Bank of Canada's Governor Stephen Poloz will hold a press conference in Ottawa at 16:45 GMT, while speaking about the Financial System Review.
Gold closes below 1,060 to push outlook down
The bearish scenario was fully implemented on Monday, as gold prices came under a substantial pressure created by short traders. After crossing both weekly S1 and lower Bollinger band around 1,062 the bullion settled at 1,060 by day-end. A recovery is not being ruled out on Tuesday, but the overall outlook has deteriorated since yesterday. The bears are now setting eye on a more medium-term target, namely the 2010 low at 1,044. However, markets remain cautious ahead of the Fed decision, which may surprise on the dovish side and eventually send gold upwards.Daily chart
Both channel down and falling wedge patterns are possibly emerging in the one-hour chart at the moment. The latter implies a narrowing trading range, as gold prices will have to stop rising around 1,075 in the nearest future. However, it is likely that an advance will be contained earlier by another resistance represented by 200-hour SMA/July low at 1,070.
Hourly chart
Market sentiment slides to 5-week low
However, both OANDA and SAXO Bank markets' sentiment is more stable with respect to the precious metal, even though their bears managed to somewhat expand their presence. OANDA clients are long on gold in 73.73% of all cases. At the same time, SAXO Bank long open positions slipped below 70% to touch the 68.68% mark by Tuesday morning.