A new Gold liquidation wave, driven by ADP data, on Wednesday?

April 01, 2020 12:00

Source: Economic Events April 1, 2020 - Admiral Markets' Forex Calendar

On Wednesday, all eyes will be on the ADP Employment Change at 12:15pm GMT.

After Initial jobless claims saw a historically high print at 3.28 million last Thursday, the highest since the Department of Labour started tracking the data in 1967, it will be interesting to see if we get to see a similarly weak ADP print. Around the Great Financial Crisis in 2008, we saw a (negative) record at -835k which will be difficult to beat, as the coming data is is expected to be published around -154k.

But a print which comes in significantly below the expectation of -154k could still trigger elevated volatility, since it would potentially point to a wider US economic downturn, and after US president Trump said last Sunday that federal coronavirus guidelines such as social distancing are to be extended until at least April 30, going beyond Easter. A shutdown that continues beyond expectations could result in an even more damaging effect on the US economy.

Usually, this would be bullish for Gold, and after Gold found a (short-term) bottom around 1,440/450 USD, and with Fed's stimulus last week (where it was announced the US central bank plans to buy an unlimited amount of US Treasuries and Mortgage-Backed-Securities (MBS)), a further push higher to and beyond 1,700 USD seems to be favoured, but we'd like to be a little careful here.

In fact, we could imagine seeing another wave of selling in classic "safe-haven" assets like Gold, resulting out of a credit crunch and liquidating everything to stay solvent.

That in mind, another "liquidation wave" could bring a short-term drop below 1,440/450 USD into play which would technically darken the picture, activating 1,250/260 USD as a first target:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between December 31, 2018, to March 31, 2020). Accessed: March 31, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of Gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.

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