European traders are taking cues from Asian markets, where we have seen decent price action on the back of the Chinese economic numbers. The DAX index is on track to record its 7th consecutive week of gains, and despite the fact that the index is near its record highs, traders still believe that there is plenty of upside left because monetary and fiscal support aren’t leaving town any time soon.
Chinese economy growing 18.3% during the first quarter is the biggest news of the day, and this has set the trading tone among traders today. China not only has controlled coronavirus to a much better degree as compared to the U.S. or Europe, but the economic growth has been enormously impressive. Although the actual GDP number was slightly lower than the markets expectation of 19%, the country has still seen a remarkable recovery that it can celebrate now.
It is not only the GDP growth number that has stolen all the headlines today but if we look at the retail sales number, which we consider as a pure naked form of consumer confidence, it isn’t short of any thunder either. Chinese retail sales soared 34.2% during the last month, and the number was well ahead of the forecast, which was 28%.
Gold prices continue to firm near their one-month high, and the price is on track to record its second consecutive week of gains. Most of these gains are not primarily because of the soft economic numbers. In fact, yesterday, we had very decent economic data out of the U.S. The reason that we are experiencing an upward move in the gold price is that bears punished the gold price too much, thinking that the Fed will take aggressive action with respect to their monetary policy as economic recovery picks up pace.
However, they have been wrong because Chairman Jerome Powell has sent several clear messages during this week. His message was that the Fed is in no rush to change its monetary policy. He also made it clear that it will be a while before the Fed can start lifting the interest rate.
There was one particular comment on the borderline of being hawkish, and that is the Fed Chairman has started to think that the U.S. economy is near its inflection point. This means that the Fed could be near enough of thinking about the tapering process. This isn’t the same as actually announcing tapering, and we are only referring to the thinking process, which includes several discussions that can take place over a number of months.
Speaking from a technical price perspective, the gold price has cleared a significant obstacle today, and that is the 50-day SMA on the daily time frame. As long as the price stays above this moving average, we have a real chance of gold price trashing the 1,800 price level. The RSI, the relative strength index, isn’t close to its overbought level of 70. This means that the gold price can continue to move higher for some time.