- Almost 60% of SWFX market participants are sceptical with respect to gold
- ECB's approaching rate decision to affect gold; dovish surprise to expose 1,230/23 and hawkish to reopen 1,279
- Aggregate daily technical studies continue betting on gold's rally
- Economic events to watch over the next 24 hours: German Trade Balance (Jan); French Industrial Production (Jan); Spanish Retail Sales (Jan); Swiss CPI (Feb); Greek Unemployment Rate (Dec); ECB Interest Rate Decisions and Press Conference; US Unemployment Claims (Mar 5) and Monthly Budget Statement (Feb); Bank of Canada Governor Poloz Speaks
Gold declined for a third trading session in a row on Thursday, sliding further away from a 13-month high reached last week as Asian equities and the US Dollar strengthened amid expectations the European Central Bank will launch more stimulus to cushion the Euro zone's economy. Asian stocks rose after the Reserve Bank of New Zealand stunned markets by cutting the official cash rate and said that further easing may be required to help offset a recent decline in inflation expectations and help faltering dairy sector amid weak global economic background. The RBNZ lowered the country's cash rate by 25 basis points, taking it to a record low of 2.25%. Meanwhile, holdings of SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, rose slightly to 25.49 million ounces on Wednesday, just below last week's 18-month high.
China's consumer prices increased the most since mid-2014 in February as food costs rose amid the week-long Lunar New Year holidays. China's inflation accelerated to an annual 2.3% rate in February, according to the National Bureau of Statistics, compared with economists' forecast for a 1.8% increase. Food prices spiked 7.3%, up from the prior month's advance of 4.1%. Inflation is predicted to nudge higher this year, though economists believe that it is unlikely to reach levels that would undermine China's leaders' plans to boost government spending to cushion slowing economic growth. Last week the government announced this year's official inflation target of 3%. At the same time, producer prices, which have been declining for more than three years, plunged 4.9% in February from year earlier, a slight improvement compared with the preceding month's decrease of 5.3%. Most economists expect Beijing to introduce further easing measures over the coming months as sluggish overseas and domestic demand put at risk the government's recently-announced 2016 GDP growth target band of 6.5%-7.0%. Last week the PBoC cut the reserve requirement ratio for large banks to boost higher lending levels.
The Bank of Canada kept its benchmark interest rate on hold as it awaits for Ottawa's forthcoming spending plans to stimulate the nation's economy before taking any further steps. The central bank maintained the target for the overnight rate steady at 0.5%, noting that the near-term economic outlook remains virtually unchanged from January. The BoC said that while stubbornly low oil prices continue to derail the Canadian economy, it noted that inflation appeared on track and that 2015 closed out with better than estimated growth. Canada's GDP increased an annualized 0.8% in the final quarter of 2015, while for the whole year the nation's economy grew 1.2%. The central bank expects that economic output will increase 1% in the first quarter of the year. However, financial vulnerabilities have increased and the commodity-price decline has left overall business investment very weak. Canada's Liberal government is due to announce its federal budget on March 22, pledging during an election campaign to spend as much as 10 billion Canadian dollars during each of the next two fiscal years. A recent commodity-price rebound, coupled with shifting expectations for Canada's and US monetary policy, have caused Canada's currency to strengthen versus the US Dollar. The BoC welcomed the recent pick-up, as it returned the exchange rate to previous estimates assumed in January.
Upcoming fundamentals: ECB and other European data in focus
It is a rare event when the European market session is completely dominating over the American one. Apart from key interest rate decisions of the European Central Bank later in the day, there is a bunch of other European fundamentals that are worth paying attention to. At 7:45 GMT the French industrial and manufacturing production data is going to come out, with economists looking for a monthly rebound of 0.8% in January after a decrease of 1.6% in the preceding month. Meantime, Spanish statistics on retail trade in January is out at 8:00 GMT. Since the Euro zone's fourth largest economy has booked a healthy pace of growth in recent quarters, the retail sales are also estimated to register an annual increase of 3.1%. Meantime, at 10:00 GMT Greece is going to publish the country's unemployment rate for the last month of 2015. Analysts project a slight improvement to 24.5% from 24.6% in November. From the other side of the Atlantic, US jobless claims for the week ended March 5 are out at 13:30 GMT, while the February statement on public finances will be published at 19:00 GMT.
Gold falls on supportive central bank background
The Greenback is appreciating on the back of weaker other currencies, while actual and expected central banks' expansionary policies are raising downside risks for gold. Yesterday XAU/USD failed to close under the weekly pivot point of 1,251, but today a selloff is being extended through this level. Any dovish movement by the ECB is likely to send the metal to the 1,230/23 area where demand will be offered by the February uptrend, 20-day SMA and weekly S1. However, December's frustration should be kept in mind, meaning less decisive Mario Draghi will increase upside risks for the bullion with an aim at recent peaks of 1,279.Daily chart
Bullish risks have also risen considerably, according to the one-hour chart's development. Here we see the spot at about the 200-hour SMA of 1,250. This line is almost immediately backed by the late-February uptrend line at 1,238. In case they fail to offer buoyant sentiment, the bullion will be expected to slide as low as Jan-Feb uptrend at 1,214.
Hourly chart
SWFX sentiment is bearish in almost 60% of all cases
Similar to the SWFX market, clients of OANDA and SAXO Bank are hesitating from changing positions significantly before the most important fundamental event of the week. 56.27% of OANDA traders are bullish on the metal at the moment and the same is true for about 55% of SAXO Bank participants.