Weekly data: Oil and Gold: Brief review before the Fed

 

 

 

 

 

 

The most important economic data for this week are:

Wednesday:

•  UK inflation rate at 07:00 AM GMT. The consensus is for a decline from 4% to 3.5% in February. If the consensus is correct then it would be the yearly low figure of British inflation and could potentially create some short minor losses for the quid since it could influence the decisions of the Bank of England on their meeting the next day.
• FED interest rate decision at 18:00 GMT is broadly expected to keep steady at 5.5% with the probability of a cut being less than 1%. Participants are focussing closely on what the comments of the central bankers in the subsequent press conference will be to get some hints as to the future direction of monetary policy.
• Japanese Balance of trade at 11:50 PM GMT where the expectations are for a decline in the trade deficit from ¥-1,758.3 billion to ¥-810.2 billion for the month of February. If the expectations are correct then the yen could face some support against the currencies traded against it.

Thursday:

• The Bank of England decides on their interest rate at 12:00 PM GMT. The general expectation is that the central bank will hold its rate stable at 5.25% but in the event that we witness a hike in the rate it could give some support to the quid in many of its pairs, especially against the US dollar whereas in the unlikely event of a cut, it might have a negative effect on the British pound in the aftermath of the release.
• Japanese inflation rate at 23:30 GMT. The expectation for the month of February is that the rate could go up to 3% from the previous 2.2%. This might be somewhat bullish news to the market participants trading the yen.

Iraq plans to reduce crude exports in the coming months to adhere to its OPEC+ quota, while Saudi Arabia’s crude exports decreased for the second consecutive month.

Stronger-than-expected economic growth in the U.S. and robust demand for crude oil in China are contributing to the upward pressure on oil prices.

On the technical side, the price is trading in a rather aggressive bullish trend and is currently testing the resistance of the upper band of the Bollinger bands. The 50-day moving average is trading well above the 100-day moving average validating the bullish momentum in the market while on the other hand, the Stochastic oscillator is trading in the extreme overbought levels hinting that a correction to the downside might be imminent. The aggressive rally however does not give much confidence to the bears and without any significant signals of a reversal, the dominant scenario is for a continuation of the current move North. If this is confirmed in the upcoming sessions then the first area of possible resistance might be seen around the $84 price area which is the psychological resistance of the round number as well as the 61.8% of the weekly Fibonacci retracement level.

The price of gold is struggling to attract buyers and remains steady above a one-week low ahead of the FOMC meeting. Factors such as reduced expectations of a Fed rate cut, higher US bond yields, and a stronger USD mainly due to the inflation data released last week that showed an uptick in the actual figure are causing the gold price to tick lower. Geopolitical tensions may offer some support to gold and could also limit its losses. Also if we take a look at the commitment of traders report we will see that the number of commercial traders has declined to hint that the price of gold might decline because commercial traders’ figures are inversely related to the price. This is because commercial traders want to buy at cheaper prices so they tend to have declining figures when prices are high and inevitably the prices are pushed down in the short term.

From the technical point of view, the price has corrected from its all-time high of around $ 2,195 down to $ 2,155 where it currently trades. In yesterday’s session, the price found sufficient resistance on the 23.6% of the daily Fibonacci retracement level and is currently on the move to cover the bullish candlestick to continue its correction move to the downside. The Stochastic oscillator is near its overbought levels although it’s on the move to reach the neutral levels given that the bearish move continues in the short term.  The Bollinger bands are still quite expanded indicating that volatility is still high in the gold market while economic data coming up later this week are broadly expected to create even more volatility, especially for the instruments traded against the dollar.

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