Gold hits the bull's eye

With limited economic data reported all throughout the week ended May 15, the American dollar remained the main laggard across the fx space. The dollar index, which is a relative gauge of the greenback against its major peers, printed fresh four month lows at 93.16. The buck was globally sold-off last week following the recent slew of poor US fundamentals viz., retail sales, consumer sentiment, and industrial production numbers, undermining US economic recovery and hence scaling back Fed rate hike bets this year.

During the past week, we published two macro ideas against the back drop of persistent USD weakness - first report on Gold under Gold Price Analysis and the second one on USD/CAD under CAD Forecast.

The first macro report titled “Gold Forecast: likely to test 200-DMA at 1207 on poor US retail sales data” was published on May 13. The idea worked out remarkably well as not only did the gold prices give a symmetrical triangle bullish break out and achieve the anticipated target but a renewed bullish momentum was fuelled taking the yellow metal higher to fresh three month peak hit at 1231.90 today.

The report was contingent on US retail trade putting up a poor show on Wednesday. As anticipated, US April retail sales trailed forecasts which raised concerns over the health of the all-important US household sector and thereby easing Fed rate hike expectations for now. Sales of retailers were flat in April, failing to climb even as little as 0.2%, as the market had been hoping for.

Gold prices pierced through $ 1200 –psychological levels on the data release and rallied surpassing 200-DMA target at 1207 and reached fresh five week highs at 1218. 50 on May 13, Wednesday itself. Thereafter, gold prices extended its bullish run and went on to reach fresh three month highs at 1225.80 on Friday.

The second report titled “USD/CAD Forecast: Could drop to 1.1860 on strong Canada's manufacturing sales” was published on May 14. The analysis and the forecasts were well in place; however, the idea did not play out that successfully. As anticipated, Canada’s manufacturing sales rebounded sharply in March, rising the most in almost four years on aerospace products sales. Manufacturing sales climbed 2.9% to $51 billion in March, Statistics Canada said on Friday. The released figures beat market consensus, which estimated an increase of 1%.

Markets remained somewhat unresponsive to the upbeat data as the USD/CAD held on firmly above 1.20 levels post data release. Also, broad US dollar weakness failed to drag the pair lower following below estimates US industrial production and consumer sentiment figures. USD/CAD did dipped below 1.20 handle after the US data releases but quickly bounced-off lows at 1.1993 and ended the week well above 1.20 threshold at 1.2013.

Week Ahead:

For this week, greatest attention will be paid to the Federal Open Market Committee's meeting minutes, scheduled to be released on Wednesday. Apart from the Fed minutes, markets will keep a watchful eye on inflation figures, housing data and manufacturing surveys to be released on both sides of the Atlantic throughout the week, with Fed Chair Janet Yellen scheduled to speak on Friday.