- Some of long positions took profit yesterday, sending their SWFX market share down to 40%
- Bullish traders are now focused on violating the current April high and February high at 1,262/63
- Daily technical indicators continue to be bullish on gold, notwithstanding the rally yesterday
- Economic events to watch over the next 24 hours: ECB President Draghi Speaks; US MBA Mortgage Applications, Existing Home Sales (Mar) and Crude Oil Inventories (Apr 15); US Claimant Count Change (Mar); Unemployment Rate (3M-Feb) and Average Hourly Earnings (Feb); MPC Member McCafferty Speaks
Gold retained overnight gains on Wednesday as worse-than-expected US housing data hit the US Dollar and supported the Fed's cautious approach to interest rate hikes. US housing starts declined more than expected in March, while permits for future home construction slipped to a one-year low, indicating some cooling in the housing market in line with signs of a steep slowdown in economic activity in the first quarter.
US housing starts declined more than expected in March, while permits for future home construction slipped to a one-year low, indicating some cooling in the housing market in line with signs of a steep slowdown in economic activity in the first quarter. Housing starts plunged 8.8% from a month earlier to a seasonally adjusted annual rate of 1.089 million in March, according to the Commerce Department. At the same time, new applications for building permits, a bellwether for forthcoming construction, dropped 7.7% to 1.086 million, from a revised February rate of 1.177 million. Demand for housing has been robust over the past year, with home prices up in many markets amid a shortage of inventory. Buyers could turn to new homes, which only account for about 10% of the overall housing market, as the supply of existing homes declines. Economists say the fragile economy, combined with low inflation justifies the Fed's cautious approach to hiking interest rates. The economy has been hit by a strong US Dollar and sluggish global demand, which have weighed on exports. Lower oil prices are also a drag as they have undercut profits of energy firms, prompting them to sharply curb spending on capital projects. First-quarter gross domestic product growth estimates are currently as low as a 0.2% annualized rate. The world's number one economy expanded at a 1.4% rate in the December quarter.
While delivering a speech on the world's economy, Reserve Bank of Australia Governor Glenn Stevens said governments should rely more on infrastructure projects rather than dropping "helicopter money" into individuals' bank accounts in order to underpin growth and inflation. The Governor said that policy makers need to look for tools other than low interest rates to boost economic growth. After the financial crisis in 2008, central banks lowered their policy rates dramatically, with many reaching zero bound. Stevens said it was evident that monetary policy has been unable to stimulate the desired speed of economic growth. The actions taken by central banks were effective during the crisis, Stevens admitted. However, policy was "always going to have limited capacity to accelerate the recovery". Regarding the prospects for future growth, Governor Stevens said he believed it was "a bit too pessimistic" to say the world had entered a stage of "secular stagnation", where the desire to save is increasing, while opportunities for profitable investment are weak, as recently suggested by former US Treasury Secretary Lawrence Summers.
Upcoming fundamentals: Big day for UK statistics, BOE's McCafferty speaks
In Europe the focus will turn to Britain on Wednesday. A piece of this country's data will touch labour market developments in February-March. The number of people claiming for unemployment benefits is expected to drop 11,900 in March after an 18,000 drop in February. Alongside, wages are estimated to increase by 2.1% in the three months through February, on the annualized basis. Jobless rate is projected to remain steady at 5.1%. Meanwhile, at 14:00 GMT a member of the BOE's Monetary Policy Committee Ian McCafferty will speak at the Bank of England. He was the only MPC member who dissented at some earlier meetings in 2015 and favoured a 25 bps increase in the key interest rate. As for the US, the weekly oil reserves data is out at 14:30 GMT. Markets, on average, assume the inventories will increase by 2.2 million barrels for the week ended April 15.
Gold confirms 1,241 from second attempt
The bullion grabbed benefits from weaker US Dollar on Tuesday, by soaring the most in a week to close at 1,250. Backed by the 55-day SMA, currently at 1,231.56, gold surged as high as the first weekly resistance at 1,256.06, which managed to contain the upward pressure. Now the spot is located above the monthly pivot (1,241.50) and the outlook is improving. The key bullish goal is present April peak at 1,262.70, which is immediately followed by the February high at 1,263.43. Also, the bullish case is expected by the aggregate daily technical studies.Daily chart
From the third attempt the longs have ultimately eroded the resistance in face of the 200-hour SMA, currently at 1,242.15. However, we have to see a consolidation above this supply in order to claim that the future forecast has definitely become positive. This is the task for the bulls today – to stay above the moving average over the whole trading session on April 20. Alongside, to diminish bearish concerns they can try to send the price in the direction of 1,262.67, namely the April 12 peak (also current April peak).
Hourly chart
Long/short distribution is back to 40/60
Bullish market portion has tightened in the OANDA market, where less than 59% of all positions are positive at the moment. Moreover, SAXO Bank's negative gap widened to more than eight pp. For the moment 54.38% of all SAXO Bank clients are betting the bullion is going to retreat, up from only slightly more than 50% yesterday.