Gold Improves on ECB Decision, Weak US Data

Gold prices have steadied on Friday, trading at a spot price of $1062.68 per ounce in the European session. This follows considerable gains a day earlier, in response to the ECB policy meeting and weak US data. We could see some volatility from gold later in the day, as the US releases a key Nonfarm Payrolls report. There are two other key releases during the day – Unemployment Rate and Average Hourly Earnings.

Gold showed strong movement on Thursday, as the metal briefly dropped below $1050 before reversing directions and gaining close to 1% on the day. The metal moved higher after the ECB shocked the markets in its decision not to add further monetary stimulus to kick-start the ailing Eurozone economy. The markets had expected some significant monetary measures from Mario Draghi and company, but the head of the ECB played it safe, opting to do little more than tweak current monetary policy. The ECB announced that the interest on deposits would be lowered from -0.20 to -0.30 percent, and the QE asset purchase program of EUR 60 billion/year would be extended for an additional six months, to March 2017. Given the lethargic Eurozone economy, the markets had expected much more, such as substantial increase to the asset purchase program or reductions to other interest rates. The lack of any substantial moves by the ECB clearly caught the markets by surprise.

All eyes are on US Nonfarm Payrolls, which will be released later on Friday. Recent employment numbers have been solid, as ADP Nonfarm Payrolls improved to 217 thousand, marking a five-month high. Unemployment Claims rose last week, but still met expectations. The upcoming Nonfarm Payroll report could play a critical in the Fed’s decision of whether to raise interest rates later this month. The Federal Reserve will obviously not confirm a widely-expected rate hike, but Fed chair Janet Yellen testified on Capitol Hill on Thursday, and signaled that a rate increase is likely in December, barring some unforeseen weak economic data before the rate decision on December 16. Earlier in the week, Yellen added that the Fed is satisfied with the progress shown by the US labor market. Persistently low inflation levels have hampered the recovery and are well below the Fed target of 2 percent, and is a key reason why the Fed did not raise rates earlier this year. However, Yellen stated that she expects inflation numbers to improve, so weak inflation may no longer be an impediment to an historic rate hike.

US PMIs, key gauges of economic activity, have not had a particularly good week. On Tuesday, ISM Manufacturing PMI slipped to 48.6 points in November. This figure fell short of the estimate of 50.6 points, and marked the first contraction of the index since May 2013. Recent manufacturing releases were also soft, as the US manufacturing sector continues to struggle. There wasn’t any relief from ISM Non-Manufacturing PMI on Thursday, as the index slipped to 55.9 points, well short of the forecast of 58.1 points. This marked a six-week low for the indicator. The silver lining is that although the index took a hit in November, the reading was still above the 50 line, indicative of expansion.

Friday (Dec. 4)

  • 13:30 US Average Hourly Earnings. Estimate 0.2%
  • 13:30 US Nonfarm Employment Change. Estimate 201K
  • 13:30 US Unemployment Rate. Estimate 5.0%
  • 13:30 US Trade Balance. Estimate -40.6B

*Key releases are highlighted in bold

*All release times are GMT

XAU/USD for Friday, December 4, 2015

Forex Rate Graph 21/1/13

XAU/USD December 4 at 10:05 GMT

XAU/USD 1062.68 H: 1065 L: 1058

XAU/USD Technical

S3 S2 S1 R1 R2 R3
980 1024 1043 1080 1098 1134
  • XAU/USD has showed  marginal movement in the Asian and European sessions.
  • On the upside, there is resistance at 1080.
  • 1043 is providing support.
  • Current range: 1043 to 1080

Further levels in both directions:

  • Below: 1043, 1024 and 980
  • Above: 1080, 1098, 1134 and 1151

OANDA’s Open Positions Ratio

XAU/USD ratio is showing little movement on Friday, consistent with the lack of movement from the pair. Long positions continue to maintain a solid majority (72%). This is indicative of strong trader bias towards gold prices moving to higher levels.

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.