Daily Insights Report 21/02/17

• 31 Mar 2017

21 Feb 2017

Industrial data released in Japan showed that the Manufacturing PMI rose to 53.5 in February from 52.1 in January. Market expectations were 52.1, so were understated. However, this barely had an impact on the value of the Yen. This has been the sixth straight month of expansion and the highest reading since March 2014. Combined with a faster increase in output, new orders, and higher employment – business confidence has hit a record high.

The price of gold recently neared a two month high and ended a third week of gains. However, the way gold has been moving in recent times is different compared to the past. As Janet Yellen’s comments about the interest rate came in recently, they did not affect gold’s price. The last three US interest-rate hikes should have been bad for the price of gold i.e. the price of gold to fall, but the price has only jumped. People have continued to buy gold, yet many hedge funds from the US have reduced their holdings of gold this month. The graph below from the CTFC (Commodity Futures Trading Commission) shows how the amount of futures contracts has fallen.

Few events that are schedules in the coming months are those which will ideally increase the price of gold. Firstly, the fiscal policy plan that Donald Trump has planned will increase the government debt. Secondly, there are anti-establishment candidates running in elections in Netherlands, France, and Germany. Since all these candidates are believed to have a reasonable chance of winning the election, an anti-establishment future cannot be discounted. Most notably, the National Front leader Marine Le Pen who stated that she would assume control of the central bank of France. These anti-establishment candidates favor that exiting the EU makes more sense for the nation. As a result of this, any chance of another country leaving the EU will make more money flow into gold. This is because of an uncertain future.

Since November 8, it is believed that the uncertainty about Donald Trump’s administration has been steering the price of gold the most. Initially, the value of precious metals fell when hints were given about heavy infrastructure spending in the US. Since then, the value of gold has almost consistently risen.

While gold sees some seasonal demand factors, such as the Chinese New Year where gold is typically purchased as gifts, long term trends should be put into context. With events coming in the coming months, gold may continue to rise and near the $1300 per ounce level this year.

Technical Analysis

GBPAUD

Looking at the daily chart of the GBPAUD, we can see a symmetrical triangle that is made. This would suggest for a trader to set up a position such that allow the AUD to weaken and reach a value between 1.62 and 1.63. The 100 and 200 day SMAs are moving downwards. In addition to this, the stochastic indicators are showing the pair to be in the oversold region. The pair may reach the 1.62 level and then head downwards from there.

Symmetrical triangles have are not the most reliable technical tool to predict the direction of the currency. Strong changes in fundamental data may be the determining factor of which direction the pair moves.