Fundamental outlook
US President Donald Trump announced the ‘phase one’ trade deal will be signed on January 15 in Whitehouse. He plans to visit Beijing after that and follow up with a ‘phase two’ negotiation with Chinese leaders.
On Friday morning, Iraq national TV reported a key military general from Iran was killed in an airstrike by US armed forces in Baghdad. Oil prices rose on Friday after the news released. Earlier that week, there was a bomb sabotage in US Embassy in Iraq.
President Trump said the airstrike was to stop a war and not to start a war. Iran’s supreme leader Ayatollah Ali Khamenei vowed revenge against those responsible for the killing of General Qasem Soleimani. Market analysts commented that the volatility oil prices might last longer than expected as the Iran and US dispute is expected to continue.
People’s Bank of China cut the reserve requirement ratio for all Chinese banks by 50 bps with effect from January 6. The rate cut is expected to free 800 billion reminbi cash fund into the market. Shanghai stock has begun to climb after the news release.
Taiwan is preparing for its national polling on January 11 as concerns loom over China’s interference and Hong Kong’s civil protest. So far, China has remained silent and maintained that there would be no violence over Taiwan’s unity.
Technical forecast
US dollar/Japanese yen fell last week after encountering strong resistance at 109.50 to 109.80 region. Currently, the market trend is approaching the 107.80 and it would probably trade in a narrow range from 107.80 to 108.80 region. However, beware of falling beneath 107.80 support as it might plunge another 100 pips this week.
Euro/US dollar encountered resistance at 1.1230 and turned downwards before the weekend as the dollar recovered slightly. We foresee the range will be tight from 1.10 to 1.12 without clear direction. Currently, there is not much news on the euro’s movement and that is mainly due to the dollar’s movement.
British pound/US dollar topped off 1.328 before declining last week. Our projection remains unchanged on the market’s movements which would likely stay within 1.29 to 1.32. We reckoned the market movement will be swing but stay constricted within the aforementioned range until month-end for the execution of the Brexit.
WTI Crude prices jumped to US$64 per barrel on Friday but settled slightly lower for the weekend. We forecast the trend could stay firm within US$62 to US$64 per barrel.
In the event of a new catalyst in the market, the bulls might move above US$64 per barrel and aim for US$68 per barrel target. Falling back beneath US$62 per barrel is a bad sign for the current bullish trend.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded over the New Year season in small range but it still maintained bullish sentiment. Buying interest remained high and could push the trend higher in the coming week. March contract closed at RM3,117 per MT on Friday. We pegged the support at RM3,050 per MT in case of a drawdown but increasing to RM3,200 per MT is also highly possible.
Gold prices consolidated at US$1,520 per ounce during mid-week but jumped to US$1,552 per ounce at closing on Friday after news of the death of Qasem. We reckoned gold will remain very volatile due to the current uncertainties.
Depending on the dollar’s trend, gold prices might ascend to US$1,560 per ounce resistance and head up to US$1,600 per ounce. Otherwise, the trend might thread sideways from US$1,530 to US$1,560 per ounce in mixed trading.
Silver prices have not risen much last week and stayed resilient at US$18.20 per ounce. We predict the trend could stay in mixed trading and constrict within US$17.70 to US$18.20 per ounce. From the gold/silver ratio chart, we reckoned the silver is still inactive and have yet to start the uptrend move. However, risk control needs to be practised in case the prices stretch beyond the aforementioned range.
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]