Monday, May 23

China passes security law on Hong Kong

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Fundamental outlook

China passed the security law on Hong Kong and the new constitution aims at prohibiting secession, subversion of state power, terrorism activities, and foreign interference. The US government has begun to eliminate the special status granted on Hong Kong.

US non-farm payroll rose 4.8 million in June, beating expectations. Unemployment rate fell to a crisis low at 11.1 per cent. Weekly claims for jobless benefits rose 1.42 million in the week ended June 27, higher than consensus’ expectations.

The World Health Organisation warned the worst could still come in the Covid-19 pandemic if governments did not start implementing the right policies to curb the outbreak. Criticisms on the poor handling of this crisis by President Donald Trump has led to his approval rating falling below his Democratic rival; Joe Biden.

China reported the PMI in June expanded at 50.9, higher expected. Reading above 50 benchmark indicates healthy expansion.

A survey on 11,000 Europeans across its nine European countries showed a lost of trust in Trump’s US based on the way he handled the pandemic outbreak.

Technical forecast

US dollar/Japanese yen showed strong resistance at 108 on the technical chart. The trend would likely fall and trade at lower prices. Support is identified at 106 and might see some bargain-hunting. Traders are reminded to exercise risk control in case the trend reverses above 108.

Euro/US dollar traded mainly from 1.12 to 1.13 in tight consolidation amidst uncertainty. We predict the trend might fall once it breaks beneath 1.12 support and go for 1.1050 bottom. The technical pattern looks like it is forming a downward movement with resistance from 1.12. Proper risk control is advised.

British pound/US dollar closed on Friday in a bearish pattern. We expect a strong resistance above 1.25. We expect the trend to travel southward to 1.22. The euro is likely to devalue against the dollar this week.

WTI Crude prices traded in a small range but capped under US$40 per barrel last week. The market is gradually weakening. If the trend does not cross above US$40 per barrel this week, we predict it will likely fall and head down to US$35 per barrel. Crude prices are still leaning downwards due to the global supply glut.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded in a tight range. The market might be forming a head-and-shoulder pattern with a potential to fall deeper in the coming weeks. September Futures contract settled at RM2,359 per metric tonne. We expect the trend to be resisted at RM2,400 per metric tonne in case of a pull up. The bears might take down the prices to RM2,250 per metric tonne if demand wanes.

Gold prices traded sideways mainly from US$1,760 to US$1,7960 per ounce last week. Standing above US$1,750 per ounce confirmed the bullish trend. We believe the market would likely still thread below US$1,790 per ounce but the jump above this resistance will short squeeze the market to US$1,900 per ounce as our next target.

Silver prices are resisted at US$18.50 per ounce and settled at US$18 per ounce on Friday. We believe the trend could hold on to its sideways consolidation again and potentially re-test US$17.50 per ounce. The overall range will be contained from US$17.50 to US$18.50 per ounce for the time being with a potential upside.

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 dar@alaa.sg.