- Market participants are keeping their open positions unchanged, as the bulls have a majority of 54%
- A strong bunch of resistances at 1,084 is at risk of being crossed, in case US data disappoints today
- Aggregate daily studies are mixed again, given that two indicators took he "sell" side
- Economic events to watch in the next 24 hours: Euro zone, UK and US Services PMI (Dec); French Consumer Confidence Index; US ADP Employment Change (Dec), Trade Balance (Nov), Factory Orders (Nov), ISM Non-Manufacturing PMI (Dec) and Crude Oil Reserves (Jan 1); FOMC Meeting Minutes; Canadian Trade Balance (Nov); Australian Trade Balance (Nov) and Building Permits (Nov)
Gold continued to rise on Wednesday as investors became more risk-averse amid escalating geopolitical tensions in the Middle East, concerns over China's economy health and a decline in global equities. Global stock markets were flat on Tuesday following the worst January kick-off in years due to fears about the world's second largest economy. On Monday, China's equities plunged 7%, prompting a halt to domestic trading and a steep sell-off in US and European markets.
China's services sector activity grew at the slowest pace in 17 months in December, adding to signs that the world's second largest economy may be losing momentum. The Caixin services purchasing managers' index dropped to 50.2, down from 51.2 in November. A reading above the key 50-mark threshold indicates expansion of the sector, whereas one below that level points to contraction. A sub-index measuring new business dropped to 50.6 in the reported month, down from 51.1, as firms struggled with relatively subdued demand. In contrast, official services PMI for December climbed to 54.4, compared with November's 53.6. In the first three quarters of 2015, the services sector accounted for more than a half of China's GDP, up from 49.1% in the same period of 2014. China's services sector has been one of the few bright spots in the economy over 2015, helping to compensate for a persistent weakness in manufacturing. Furthermore, China's government has been trying to encourage higher consumption to rebalance the economy and replace faltering old growth drivers including heavy industry and exports. China's economy is predicted to slow from 7.3% in 2014 to 6.9% in 2015, according to the PBoC, marking the slowest pace in 25 years. However, a number of economists believe real growth is already much weaker than official data show.
US manufacturing sector lost some steam in December, as both Markit's and the Institute for Supply Management reported a decline in business activity. According to the ISM, manufacturing PMI came in at 48.2 last month, down from 48.6 in November, whereas economists had predicted the gauge to rise to 49.0. At the same time, the final PMI reading from Markit dropped to 51.2 during the last month of 2015, down from 52.8 in November. Manufacturers continue to struggle with a strong US Dollar, slowdown in China, as well as volatile stock market. Meanwhile, Fed Vice Chairman Stanley Fischer said the Fed's tool kit proved to be successful in raising the benchmark federal-funds rate after the December decision to hike rates from zero. Fischer highlighted that officials are ready to consider changes should problems arise. The US central bank in mid-December decided to raise the fed-funds rate to a range of 0.25% to 0.50% after keeping it near zero for seven years. There were some concerns about Fed's ability to hike rates, but the fed-funds rate moved into its new range the day following the Fed's decision. Fed policy makers project that they will further raise the target range by a full percentage point over the course of the year, to 1.25%-1.5%.
Upcoming fundamentals: Busy US trading expected amid many data releases
Analysts expect that the first reading for US employment change for December will show a gain of 193,000 jobs. The ADP report will be out at 13:15 GMT, while numbers will follow a November's increase of 217,000. US trade balance (13:30 GMT) and factory orders (15:00 GMT) are projected to worsen in November. Negative trade gap in the world's largest economy has probably widened to $44 billion during the last day of autumn, while factory orders are forecasted to drop by 0.2% in the same month after a surge of 1.5% in October. Meanwhile, crucial FOMC meeting minutes will be released today at 19:00 GMT. This event is being awaited with caution, as market participants are preparing for hints of the future pace of monetary policy normalisation this year, after the Federal Reserve raised its interest rates by 25 basis points in December for the first time in almost a decade. Among news from other regions, Australian trade and construction data will be published at 0:30 GMT on Thursday. While trade deficit is expected to decrease in November, building approvals have probably tumbled by 2.8% during the same month.
Gold closes above downtrend, exposes 1,084
The bullion spent another trading session in a positive way, as the bulls were strong enough to push prices above 1,075 yesterday. As a result, the two-month downtrend line was crossed and now we are focusing on the next resistance area at 1,084. This one is considered to be much more important, as we are dealing with 55-day SMA, upper Bollinger band, weekly R2 and monthly R1. To violate this supply zone, the traders are likely to require a boost from fundamentals. Today the US ADP employment is due, and a negative surprise will provide gold with an opportunity to rally.Daily chart
Bullish expectations are confirmed by the one-hour chart, where the precious metal is hovering above 200-hour SMA for a third consecutive day. Besides the dense resistance zone in the daily chart, here we have another supply represented by the previous month's high at 1,088. Probability of a correction remains quite high, as long as gold prices are not targeting upper levels in the 1,090-1,100 range.
Hourly chart
Bullish-bearish distribution stabilised at 54-46%
At the same time, while OANDA market sentiment deteriorated below 70% by the morning on Wednesday, SAXO Bank clients are still betting on gold's advance. The latter's bullish market participants increased their market share slightly up, namely to 67%.