Gold dips lower despite uncertain global economic outlook

EUR

The decline from 1.3700 highs led euro towards important support levels at 1.3250-80. As we can notice from the daily chart, the trend line from November lows is being tested.

The European economy is strongly fragmented and the fact that Germany carries the euro zone on her shoulder adds to uncertainty about the euro. Another factor that could explain the EUR/USD correction is the upcoming elections in Italy. On the other hand, the euro is still supported by a weak dollar and a weakening Yen.

USD

In the US, data on Friday indicated that the economic recovery remains uncertain. The New York Federal Reserve reported that manufacturing in New York State expanded in February, while a survey showed a surprisingly strong rise in US consumer sentiment.

The Empire State manufacturing index rebounded to 10.0 in February, from minus 7.8 in January, outstripping expectations for a reading of minus 2. The University of Michigan said its index of consumer confidence rose to 76.3 from 73.8 in January, better than expectations for a reading of 74.8.

However, a separate report showed that industrial production in the U.S. slipped 0.1% in December after a revised 0.4% gain in December. Economists had been expecting an uptick of 0.2%. Markets in the U.S. are to remain closed for the President's Day holiday.

GBP

The Pound looks particularly bearish given the break below 1.56 last week. There are fears of stagflation in the UK, with inflation expected to remain above 2% and growth expected to fall to 1%.

The Cable fell to six-and-a-half month lows against on Friday after official data showed that U.K. retail sales fell more than expected in January adding to fears over the economic outlook.

GBP/USD hit a low of 1.5461 on Friday, the pair's lowest since July 25, before settling back at 1.5516, 0.16% higher for the day but down 0.90% for the week. Cable is likely to find support at 1.5371 and resistance at 1.5549, Friday's high.

The pound fell sharply after the Office for National Statistics said UK retail sales dropped 0.6% in January as a result of heavy snow, confounding expectations for a 0.4% increase. On Wednesday, the Bank of England cut its outlook for growth in its quarterly inflation report and said inflation would remain above target until early 2016.

The BoE said inflation is likely to be at around 2.3% in two years' time, sharply higher than the 1.8% forecast in November, before falling back below the bank's 2% target in the first quarter of 2016.

JPY

USD/JPY trades higher on relief the G20 did not warn Japan with regards to currency manipulation. A rise above 94.50 could target 95.50-96.00 levels.  It appears that the decision makers are not ready to accept entering any currency war.

AUD

The Australian Dollar was flat for the week against the US Dollar ahead of this week's release of the minutes from the last RBA meeting. With the Australian economy weakening, traders start to speculate on an interest rate cut by the RBA's Governor, Glenn Stevens. As long as the pair trades below the 1.04 resistance another leg down towards 1.01:02 seems likely.

CAD

The Canadian Dollar got under renewed selling pressure last Friday after weak Manufacturing sales figures. The data came in at -3.1% versus expectations of -0.8% for the month of December. USD/CAD jumped 60 pips after the data.

During the upcoming week we expect plenty of economic data out of Canada such as trade figures, wholesale and retail sales figures, CPI data and housing prices. From a technical perspective we expect more upside in USD/CAD and a retest of the 1.01 level.

NZD

New Zealand continues to report a string of positive data; stronger than expected retail sales follow 8-month high manufacturing PMI released Thursday, sending NZD/USD to new multi-month highs and AUD/NZD to new multi-year lows.

GOLD

Last week it was reported that India's gold imports in January surged 23% from a year ago to their highest in 18 months. On that note, concerns over the mounting current account deficit that hit a record 5.4% of gross domestic product in July-September meant that the government moved to rein in its gold imports by raising the import duty on the precious metal to 6% from 4% on January 21st. 

The first gold importer could see its demand decreasing sharply. Bachhraj Bamalwa President of the All India Gems & Jewellery Federation lobby said that India could see its gold demand decreasing by about 20 to 25 percent this year.

Indeed after multiplying the tax on gold imports by 4 last year, from 1% to 4%, the Indian government announced another raise of 2% on the tax of gold import in line with their policy to diminish the gold imports. Spot gold fell 3.5% last week.