Fundamental Forecast for Gold:Bearish
- FOMC Setups - EUR, CAD, Gold Eye Key Dollar Inflection Points
- Gold at Risk of Failed Breakout; 1231 is Significant
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Gold is markedly lower this week with the precious metal down 2.36% to trade at $1240 ahead of the New York close on Friday. The move marks the first weekly loss in six after bullion reversed off key resistance earlier in the week. All eyes now turn back to the US economic docket with the non-farm employment report in focus as we open up February trade.
The FOMC policy meeting on Wednesday was the highlight of the week with the central bank moving to taper QE installments by another 10billion, bringing the asset purchase program to a total of 65billion. This was the last meeting for Mr. Bernanke as central bank chairman with Janet Yellen set to be sworn in on Monday morning. The policy statement remained rather upbeat despite speculation that we may see the Fed soften its taper talk on account of the dismal December employment report. The decision for the central bank to continue scaling back on its accommodative measures suggest that the committee views the weak report as a one off type event and markets will be looking ahead to US data for further guidance on future monetary policy. Objectively speaking, taper expectations are likely to cap gold advances in the near-term.
Gold traders will closely eyeing the economic docket next week with ISM manufacturing, Factory orders and trade balance data on tap ahead of the highly anticipated non-farm payrolls report on Friday. Consensus estimates are calling for a print of 180K for the month of January, up from just 74K in December with the unemployment rate widely expected to hold at 6.7%. Look for at-expectation prints and better to continue weighing on gold prospects with a weak read (specifically on employment) likely to be supportive. Bottom line, despite next week’s event risk the metal has now come into a key threshold of technical resistance and this mark will remain paramount as we head deeper into the first quarter.
From a technical standpoint, gold has now responded to a critical level of resistance we have been eyeing for weeks at $1268/70. Our focus remains weighted to the downside while below this mark as we head into February trade with the monthly opening range likely to offer further conviction. Interim support rests at $1240 with a move sub-$1231 offering further conviction of our directional bias. Support targets are seen at $1217, 1207 and $1179/80. That said, we will respect a breach/close above $1270 with such a scenario suggesting a more significant low was put in back in December and invalidating our broader outlook. Topside targets at $1287, $1315, and $1325/30.- MB