Fundamental outlook
DOW markets closed at new historical high 28,004 after White House economic advisor Larry Kudlow said China and the US are very near to reaching a trade deal. Nasdaq composite and S&P 50 indexes closed at 8,540 and 3,120 respectively.
US President Donald Trump spoke at the Economic Club of New York and highlighted the Federal Reserve’s hesitation to lower interest rates that has capped gains in economic growth and stock prices. Trump also singled out the European Union (EU) for its unfair trade practices and continued to add pressure on China for reinstating the tariff if no deal is signed by year end.
The US consumer prices rose 0.4 per cent in October, while core prices steadied at 0.2 per cent gains. China’s Commerce Ministry said tariff should be removed completely to end the trade war with US. A trade deal is still closely watched by traders. UK GDP grew 0.3 per cent in 3Q, below forecast. British consumer prices gained 1.5 per cent in October on an annualised rate. Brexit remained a major national event for UK after the general election in December.
Excluding India, a group of 15 Asia-Pacific countries could be signing the largest trade pact known as Regional Comprehensive Economic Partnership, or RCEP, in 2020. The framework was initially discussed in 2013 in Cambodia and has taken almost six years to formalise the mutual agreement.
Technical forecast
US dollar/Japanese yet traded in the range below 109.50, as we predicted. We foresee the trend will remain trap inside the range from 108 to 109.50. Breaking beyond this range will signal a new directional trend in the market.
Euro/US dollar traded in sideways as the trend bounced off 1.0980 bottom. We reckon the market will be well supported at 1.0950 to 1.0980. This week, the trend is likely to trade in narrow range from 1.0980 to 1.1130 region while waiting for more fundamental news in the market.
British pound/US dollar moved in gradual recovery last week especially after Brexit Party leader Nigel Farage confirmed his stepping down from challenging seats in the coming election. This week, we project little change in the market as the resistance is still strong at 1.30. Overall range is contained from 1.2750 to 1.30 until we see a breakthrough in December.
WTI Crude prices traded in a sideways narrow range last week. Market showed a new protruded uptrend on Friday as trade deal prevails positive sentiment. Initial narrow range is expected to be contained from US$56 to US$58 per barrel. However, piercing above this range will rise to US$60 per barrel as our next target.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives moved into correction after it topped above RM2,650 per MT level. The active month will roll into February Futures contract after it closed at RM2,606 per MT on Friday. We forecast the trend will be resisted above RM2,620 per MT and trend to fall sharply back to RM2,500 per MT region. Risk control is advised in case the trend swings against your favour.
Gold prices recovered in mild uptrend last week as the dollar weakened moderately. We aim for a potential down move in gold since positive comments of White House’s Kudlow have pushed the US stock markets to fresh highs. We predict strong selling activity will ambush above US$1,480 per ounce in case of recovery.
Overall range is expected to move from US$1,450 to US$1,480 per ounce region. Beware of dropping beneath the range that could land at US$1,400 per ounce as our next target. Silver prices are currently making a small recovery. We target the resistance will emerge at US$17.20 per ounce. The market tends to fall after mid-week while overall trend is forecast at US$16.20 to US$17.20 per ounce region.
The market fund will probably favour oil demand towards year-end as they flee precious metals.
Dar Wong has 30 years of trading and hedging experiences in global financial markets. The opinion is solely his own. He can be reached at [email protected]