Week 10 Review - Times They're A-Changin'
Gold printing successive new ATHs, softer US economic data - Policy lag effects
A week full of events with Gold printing successive ATHs, softening US economic data, BoJ Japan comments on potential lifting interest rates on March meeting, CBs increasing Gold reserves… and yes now we the fundamentals are supporting the technical and we have reasons to see that the times they’re changin’.
Looking at the economic data on Tuesday we had softening ISM Services and even though is still above the 50 grade point, we should not forget that past week ISM Manufacturing came pretty poor also which show us that PMI figures are getting poor. ON Wednesday together with Jerome Powell, we had a first set of labor data which came below expectations for ADP but JOLTS, even with the downwardly revision came even a bit lower, give us also signs of labor data to be softening and in line with Manufacturing PMI. The focus on this day was of course Jerome Powell which came pretty neutral not adding new to the table but seen by the markets as dovish which kept Gold printing new highs. On Thursday and as we highlighted on our weekly preview, the appearance of JP was
already priced in with markets adjusted and Jobless claims came the same as upwardly revision at 217k. Markets on this day were waiting for labor data on Friday which UER came above our expectations at 3.9% (weren’t expecting more than 3.8%) and NFP decrease but with an aggressive downward revision from 353k to 229K, the 275K result created some short term indecision. Wages on MoM saw also a sharp decline from the downwardly revision from 0.6% to 0.5% with a 0.1% result.
Looking at the markets we can see that Gold during this week had only one direction, successively printing new all time highs and exploring unsailed prices day by day. If last week we were looking to some sort of friendly pullback to keep gold bullish, buyers didn’t care at all to search for better buy zones and kept driving Gold to print new highs supported now by known understandable fundamentals.
As we can see above, the low of the week was printed during the first Asian session at 2070 and peaked on Friday after London close hours at 2195.15 (Oanda Feed), this was a very strong move with more than 1000pips to the upside and as you can see no friendly pullbacks but only accumulation areas providing just downside fake outs for optimal buy opportunities.
Zooming out and looking on Gold on HTF it can be clearly seen this strong upside since the start o March and bear in mind that we just had 6 business days of markets open for such move to be executed. Another important aspect as you can see above is that whenever gold printed or retested highs was due to fundamental catalysts, meaning above the 2000s, it was short lived. The exception is occurring now that since November that we were playing the early rate cuts narrative Gold broke the 2000s mark and was able to sustain and even though markets have priced in rate cuts only for June, after JP clear statement of not cutting in March, we keep seeing strong bullish Gold.
On the other hand we have Dollar and if we indeed were bullish because the fundamentals were still supporting, right now we have reasons to change our bias.
If on the weekly preview we were marking out potential buy areas (green squares) because we were still bullish since it printed the low at 101s, this week the bullish market structure was broken for the same fundamental reasons that Gold printed successive highs, Dollar came all the way to close below the 103s.
Overall the data was pretty poor and if the previous week we were surprised with PMI figures being poor with Chicago PMI, then we got ISM Manufacturing and this week the Services (that even though are above the 50 grade point were below previous), labor data in the end of the week gave us signs that policy lags effects are in play. It is true that Factory Orders and Durable Goods dropped within their normal moves but overall we have been reported with declined US data and this week we were able to play another bullish move.
Another important fundamental aspect that is also concerned in regards to the title of this weeks post is Bank of Japan. This week more headlines in regards of policy positioning shifts that created pullbacks on XXXJPY pairs as Yen got more strength. Wages growth lead again to hawkish comments from BoJ members on potential shifts on their historical loose monetary policy.
As we can see above, this recent pullback created by what we referred above is very interesting and not only Dollar was bearish for what we already discussed but BoJ added more hawkish stance to prop up the Yen giving us this hard pullback that works even better than a currency intervention.
Before we go, on the week before we had doubts on such upside move on Gold where we were not able to correlate the move with the basket of risk or safe havens assets/currencies, a lot of speculation and different opinions (most of them valid) tried to justify such move, although an headline that came out this week highlighted the fact some central banks were accumulating Gold could also be a reason for such upside move.
Indeed The Times They’re A-Changin’ and not only we are starting to received poor US economic data feeling the heat of Policy lag effects but also seeing signs of Japan shifts, no matter if they go only from the -0.1% to 0% and can keep there for more and many years, although markets react in anticipation and it is very interesting for us to see such happening as such started for more than 10 years, which is also known as Kurodanomics, because it was introduced by previous BoJ governor Haruhiko Kuroda, and will we be assisting to the end of Kurodanomics? we will see.
Time now to reset, refresh and prepare for the week ahead as we have important US data to play with.
Come gather 'round, people, wherever you roam
And admit that the waters around you have grown
And accept it that soon you'll be drenched to the bone
If your time to you is worth saving
And you better start swimmin' or you'll sink like a stone
For the times, they are a-changin'
Bob Dylan - The Times They’re A-Changin’ - 1964