Fundamental outlook
CHINA announced a standstill of the 25 per cent import tariff on US automobile imports starting from January 1. This was in-line with the 90-day truce with US Government to retain the status-quo while entering into a new negotiation phase to iron out the trade imbalance. China’s industrial production and retail sales on a yearly basis have both missed the November forecast and waned investors’ confidence.
The trade dispute between US and China has simmered down for now, following the release of Huawei’s chief financial officer Meng Wanzhou on bail in Canada.
Traders are watching closely on the fundamental changes in this case as two Canadian business leaders have also been reportedly detained in China by its State Security. The media reckoned that the foreign affairs have been politicised by the trade war between the US and China.
British Prime Minister Theresa May won the leadership vote in Parliament and crushed the market’s rumours of a possible government collapse. May will advance to Brussels to meet European Commission officials to discuss the North Ireland backstop issue.
Last week, the British pound whipsawed in a temporary recovery after May’s victory vote but succumbed to selling forces on Friday.
European Central Bank (ECB) president Mario Draghi commented that stimulus programme would end after December 2018. Purchase for bonds will be reduced from a monthly 15 billion euros to zero from January onwards. Draghi also assured that the cash which would be drawn out from matured bonds would be used to reinvest in other markets until an extended period of time.
Technical forecast
US dollar/Japanese yen traded in recovery at 113.50 on Friday as the dollar strengthened again last week.
This week, we predict strong selling pressure will emerge between 113.50 to 114 and it could coerce the trend into a range trade. Support is identified at 112.30 and it should hold well for the time being until the end of the year. Abandon all long positions with the trend trades below 112.
Euro/US dollar has been trading sideways within a tight range as a counter-balance force confined the yen and pound’s movements. On Friday, the trend showed a bearish sign with resistance emerging at 1.1350.
Though trading activity will slow down toward the holiday season, we foresee the trend will trade softer at 1.12 as traders unwind their positions. Beware of trading above 1.14 as it could jeopardise your short-term prospects.
British pound/US dollar dropped from 1.2750 tops early last week and dipped to below 1.25 before it bounced. The trend recovered about 200 pips after Prime Minister May’s victory but reverted to a downward trend on Friday.
This week, we remain bearish in the market as the pound is prone to weaken on a long-term basis. The trend may be contained from 1.25 to 1.26 but breaking below the support could lead to a 1.235 target.
Gold prices traded in a narrow range beneath US$1,250 per ounce last week as the bulls failed to cross above the aforementioned benchmark. This week, we reckoned the trend will continue to hover around this region from US$1,230 to US$1,250 per oz until we see an extension.
The slightest breakthrough in either direction will indicate a new trend may emerge in the market towards the weekend. Logically, the Dollar Index (USDX) will be an essential factor to trigger an inverse direction in gold prices.
WTI Crude prices are moving in a tight range from US$50 to US$54 per barrel without indications of its advancing higher.
Despite the OPEC and Russia agreement to cut daily supply from January 1, the resilient dollar’s strength has put a lid on crude prices and prevent demand from building in the market. This week, we presumed the trend will remain unchanged so long as the dollar does not make any significant changes.
Silver prices topped US$14.80 per oz area last week and fell. Some resistances are seen in demand for silver as gold has not advanced higher. This week, we forecast the trend will be contained from US$14.30 to US$14.80 per oz in mixed trading activity. Likewise to the yellow metal, we reckoned the dollar will trigger an inverse movement and followed by the silver’s trend.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded higher last week as funds flee the FKLI market. Speculative trading has picked up in the FCPO market as momentum and averaging prices recover in the market.
February contract was at RM2,068 per MT on Friday and we expect the new rollover contract in March 2019 to thread sideways in the coming week. Technically, the trend is prone to swing from RM2,080 to RM2,150 to MT in mixed trading due to a position adjustment.
Dar Wong is a professional in the financial industry based in Singapore with 29 years of global trading experiences. The expression is solely his own. You may reach him at [email protected].