XAU/USD – Gold Softens After Strong Jobs and Mfg. Reports, Fed Looms

Gold has posted losses on Wednesday, erasing much of the gains from the Tuesday session. In the North American session, the spot price for one ounce is trading at $1203.02. On the release front, ADP Nonfarm Payrolls sparkled with a gain of 246 thousand, well above the forecast of 165 thousand. This marked the strongest monthly gain since December 2014. Will the impressive reading repeat itself with the official Nonfarm payrolls report on Friday? The markets are expecting this key indicator to improve to 170 thousand.

ISM Manufacturing PMI improved to 56.0, beating the forecast of 55.0. Later in the day, the Federal Reserve issues a rate statement and sets the benchmark rate, which is expected to remain pegged at 0.50%. If the Fed statement is optimistic about the US economy, we could see gold continue to lose ground, as investors’ appetite for risk could grow at the  expense of gold. On Thursday, the US will release the weekly unemployment claims report.

All eyes are on the Federal Reserve, which will release a policy statement later on Wednesday. After a historic quarter-point raise in December, which pushed rates to 0.50 percent, the Fed is expected to remain on the sidelines in its first release of 2017. What happens next? Just a few weeks ago, Fed officials were talking about a series of rates hikes in 2017 in response to a strong US economy (sound familiar? Please rewind to January 2016 for an identical message). However, after just 10 days on the job, President Trump has proven to be as unpredictable and controversial as ever. Trump has not provided any details about his economic blueprint for the country, but he has raised the rhetoric about “America first” and has already picked a fight with Mexico over a border wall and his threat to renegotiate the NAFTA trade agreement. After hinting at gradual rate increases, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds. If economic growth remains strong, a rate hike in the first half of 2017 will have to be seriously considered by the Fed. The markets have priced in a rate hike by June at 66 percent.

Fed Expected to Hold as Trump Comments Sink Dollar

XAU/USD Fundamentals

Wednesday (February 1)

• 8:15 US ADP Nonfarm Employment Change. Estimate 165K. Actual 246K
• 9:45 US Final Manufacturing PMI. Estimate 55.1. Actual 55.0
• 10:00 US ISM Manufacturing PMI. Estimate 55.0. Actual 56.0
• 10:00 US Construction Spending. Estimate 0.2%. Actual -0.2%
• 10:00 US ISM Manufacturing Prices. Estimate 66.0. Actual 69.0
• 10:30 US Crude Oil Inventories. Estimate 2.6M. Actual 6.5M
• All Day – US Total Vehicle Sales. Estimate 17.9M. Actual 
• 14:00 US FOMC Statement
• 14:00 US Federal Funds Rates. Estimate <0.75%

Upcoming Key Releases

Thursday (February 2)

• 8:30 US Unemployment Claims. Estimate 251K

*All release times are EST

*Key events are in bold

XAU/USD for Wednesday, February 1, 2017

XAU/USD February 1 at 13:50 EST

Open: 1196.76 High: 1215.41 Low: 1196.09 Close: 1210.41

XAU/USD Technical

• XAU/USD posted slight gains in the Asian session. In European trade, the pair posted slight losses but recovered. XAU/USD has posted stronger gains in the North American session
• 1199 has switched to a support role following gains by XAU/USD on Tuesday
• 1232 is the next resistance line
• Current range: 1199 to 1232

Further levels in both directions:

• Below: 1199, 1174, 1146 and 1130
• Above: 1232, 1260 and 1285

OANDA’s Open Positions Ratio

XAU/USD ratio is unchanged in the Wednesday session. Long positions have a strong majority (71%), indicative of trader bias towards XAU/USD continuing to climb to higher levels.

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