Gold Jumps on Weak US Data, SNB Cap Move

Gold is trading at 4-month highs on Friday, courtesy of strong gains a day earlier. In the European session, the spot price is $1258.42 per ounce. Gold prices jumped up about 2.5% on Thursday, taking advantage of weak US numbers, as well as a surprise move by the Swiss National Bank to reduce its cap against the euro and lower interest rates. Taking a look at Friday’s events, it’s another busy day in the US, highlighted by CPI and the UoM Consumer Sentiment.

US employment numbers slipped on Thursday, as Unemployment Claims surprised with a reading of 316 thousand. This was well above the estimate of 299 thousand and was the highest reading since June 2014. However, the first full week of the year often shows a spike in claims, since holiday workers are dismissed, resulting in a higher number of claims. Elsewhere, PPI posted a decline of 0.3%, matching the forecast. Manufacturing data was mixed, as the Empire State Manufacturing Index rose to 10.3 points, while the Philly Fed Manufacturing Index slipped to 6.3 points, its worst showing in 11 months.

The markets were in shock on Thursday, as the Swiss National Bank suddenly terminated its cap on the exchange rate between the euro and the franc, which was set a floor of 1.20 for EUR/CHF. The cap had been in place since 2011, and the move marks a major policy reversal for the normally conservative Swiss central bank. Market reaction was swift, as the euro dropped some 15% against the franc and slipped 160 points against the US dollar. Why the dramatic move by the Swiss? One reason is an attempt to fight deflation, which is hurting the Swiss economy. As well, the SNB has been buying large amounts of euros to keep EUR/CHF within the cap, and with the euro having fallen to 10 years low, the central bank may have soured on the common currency. The SNB also reduced interest rates, which helped gold move higher.

XAU/USD for Friday, January 16, 2015

XAU/USD January 16 at 11:10 GMT

XAU/USD 1258.42 H: 1263.81 L: 1255.14

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1215 1240 1255 1275 1300 1322

 

  • XAU/USD has stabilized after huge gains on Thursday, as the pair trades just above support at 1255.
  • 1255 reverted to a support role after gold posted strong gains on Thursday. It could see more action during the day. There is stronger support at 1240.
  • 1275 is an immediate resistance line.
  • Current range: 1255 to 1275

Further levels in both directions:

  • Below: 1255, 1240, 1215, 1200 and 1175
  • Above: 1275, 1300, 1322, 1345

 

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to gains in short positions on Friday. This is consistent with the pair’s movement, as gold has posted small losses. The ratio remains close to a split between long and short positions, indicating a lack of trader bias as to what direction the pair will take next.

XAU/USD Fundamentals

  • 13:30 US CPI. Estimate -0.3%.
  • 13:30 US Core CPI. Estimate 0.1%.
  • 14:15 US Capacity Utilization Rate. Estimate 80.2%.
  • 14:15 US Industrial Production. Estimate 0.1%.
  • 14:55 US Preliminary UoM Consumer Sentiment. Estimate 94.2 points.
  • 14:55 US Preliminary UoM Inflation Expectations.
  • 16:00 US FOMC Member John Williams Speaks.
  • 21:00 US TIC Long-Term Purchases. Estimate 27.3B.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.