- SWFX traders are moderately bullish with respect to gold (55%)
- Renewed equities and oil drop to support gold; more bullish momentum likely to come after Fed
- Daily technical indicators (including RSI) see the yellow metal unchanged in the next 24 hours
- Economic events to watch in the next 24 hours: US Services PMI (Jan), CB Consumer Confidence (Jan), HPI (Nov) and Richmond Fed Manufacturing Index (Jan); Swiss Trade Balance (Dec); BOE Governor Carney Speaks; Australian CPI (Q4)
Gold rose to the highest level in two weeks on Tuesday as equities and crude oil resumed their drop, spurring gold demand. Moreover, the US Dollar came under pressure as the Fed gathers for a two-day meeting later on today. The US central bank is widely expected to keep the federal funds rate on hold at 0.25%-0.50%. The chances of another rate hike at the March meeting have waned, with some experts seeing it delayed to later in the year. That builds downward pressure on the US Dollar and benefits bullion.
UK factories started the year on a weak footing as export orders declined at a steeper pace in January compared with December, while total orders also fell, according to the Confederation of British Industry. The industry has been struggling for years as weakness in the key trading partner, the Euro zone, as well as strength of the Pound undermined exports growth. Unfortunately, the CBI reported that improvements are not on horizon. Total factory orders dropped between December and January to record a negative balance of -15%. However, the less volatile quarterly reading improved to –4%, up from –12% recorded in October. While domestic demand remains resilient, global turmoil in denting further growth prospects. According to Markit/CIPS PMI survey, manufacturing activity in the UK slowed in December, with the output and new order growth easing. The overall performance of the UK manufacturing sector in 2015 was below levels seen in 2014. UK manufacturing dropped 0.4% in November amid a warmer-than-average weather. However, it grew on a quarterly basis by 0.5% in the three months through November, the biggest gain since October 2014, and up from 0.3% in the quarter to October.
Despite recent market turbulence, Australia's business confidence remained strong last month. According to the NAB monthly business survey, business confidence declined slightly from +5 in November to +3 last month, with morale among Australian firms remaining resilient for several months, which supports policy makers' belief that a recovery is gaining momentum outside of the mining sector. At the same time, the business conditions index slid to +7 in December after climbing to +7 in the preceding month. The survey revealed that lower interest rates and a weaker Australian Dollar has helped to support the services sector. However, the retail and construction sectors faced a massive contraction in business conditions. The NAB said business conditions indicated the non-mining recovery remained on track. The Reserve Bank of Australia is expected to stay on the side-lines for the near term. However, the NAB cut its global growth outlook for 2016 to 3%. The world's economy's growth continues to disappoint and remains below average as a slowdown continues across many emerging market economies. Moreover, the bank predicts the Australian Dollar to slide to 66 US cents by June 2016.
Upcoming fundamentals: Carney to speak, Australian CPI data in focus
Governor of the Bank of England Mark Carney will speak about the Financial Stability Report later on Tuesday at 10:45 GMT. It is possible that the head of UK monetary policy regulator will confirm his objection to increase the official interest rate in the nearest future, while pointing on recent market volatility, Chinese economic issues and upcoming EU referendum in Britain. In the meantime, some turbulence is highly likely to be created by Australian inflation data at 0:30 GMT on Wednesday. Consumer prices rose by 0.5% in the third quarter, but economists expect only a mild 0.3% quarter-on-quarter increase in October-December. Weaker consumer prices will turn attention to the Reserve Bank of Australia, which could be forced to cut interest rates in the future to combat the CPI's downward trend.
Gold to break out of triangle on risk aversion
In the Asian session on Thursday the precious metal has booked some noticeable gains, as the price is located above the January downtrend at 1,113. To show strength and ability to grow further, the bulls are required to keep XAU/USD above 1,107 (downtrend) for two consecutive trading sessions. Some support may come from the Fed tomorrow. If successful, the long traders will focus on much heavier resistance at 1,127/31 (monthly R3 and 200-day SMA). However, downside risks are not off the table, as daily and weekly technical indicators remain quite mixed.Daily chart
The 1H chart is sending a very confident bullish signal for the market. Gold is now breaching the Jan 8-20 downtrend line, after it successfully penetrated the October 2015 low earlier on Monday. We are now switching our attention to Dec-Jan uptrend line near 1,125, which should act as a key hope for the bears to reverse XAU/USD.
Hourly chart