Fundamental outlook
PRESIDENT-ELECT Joe Biden unveiled new stimulus package worth US$1.9 trillion that supports the unemployment, sustaining families and Covid-19 reliefs. Analysts foresee this will be implemented in February after Biden takes over the White House. Fund managers cautioned the possibility of creating stock bubbles with more printed monies injected into market.
Democrats are working with the House to impeach President Donald Trump but the current Vice President Mike Pence refuses to sign the 25th Amendment article to invoke the action. The US secretary of state Mike Pompeo cancelled his final trip as a top diplomate to Europe after North Atlantic Treaty Organisation (NATO) officials and European Union refused to meet him.
In China, more areas near to Beijing are placed under lockdown to curb the resurgence of Covid-19 cases in the country. A new Covid-19 variant has been discovered in Brazil. World Health Organisation warned that vaccines are not ‘silver bullets’ against Covid-19 and we should not completely rely on these vaccines. Citizens should continue to try and break the chain in their community and stay at home to curb the spread of Covid-19.
UK tightened its borders with stringent rules to prevent the import of other Covid-19 variants from other countries. Prime Minister Boris Johnson warned that the new variant might undo the effort of fighting against pandemic in the country.
Technical forecast
US dollar/Japanese yen traded in a tight range from 103.50 to 104.50 last week. The dollar is acting as main the leading factor of the market’s direction but the trend remains uncertain. We expect the trend could be stuck in a similar range until it extends in either direction. The breakaway in either direction might extend another 100 pips to 102.50 or 104.50.
Euro/US dollar broke beneath 1.22 and closed at 1.208 on Friday. We expect resistance could emerge at 1.215 while the trend is prone to dive further. The downside target might reach 1.1920 to 1.1950 in case of a bearish extension. Beware of a recovery in the dollar and volatility in the market.
British pound/US dollar fizzled out after topping 1.37 last week. Technically, the trend is strongly resisted at 1.3650 and will likely travel southward. We expect the bears to attempt 1.3450 to 1.35 before bargain hunting emerges in market. The worsening pandemic crisis and strengthening dollar are putting the pound in a vulnerable position.
WTI Crude prices fell short of US$54 per barrel level as we predicted last week. This week, we predict the market will trade lower and possibly reach US$50 per barrel benchmark in line with the rising dollar. The next lower target could be at US$46 per barrel in case of selling frenzy arises in the market. Beware of volatility and mixed sentiments in the market once the trend unwinds.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives fell throughout last week due to profit-taking activities. The FCPO market will roll over to April as an active month next week. We expect market prices could trade lower on Monday as April Futures contract settle at RM3,323 per metric tonne on Friday. We believe the trend could fall and reach RM3,200 per metric tonne while topside resistance could emerge at RM3,370 per metric tonne level.
Gold prices indicated a possible decline on Friday after the dollar rose. We project gold could be prone to fall further with a possibility to test US$1,800 per ounce or lower. The secondary lower target lies at US$1,760 per ounce if the bears breaks the US$1,800 per ounce benchmark and settle beneath this level. Traders are reminded to exercise caution and patience in picking the bottom towards end-January.
Silver prices saw strong selling signs on Friday’s close. We reckoned the market will trade lower and test US$23 per ounce as our next target. Resistance could emerge at US$25.50 per ounce in case of a short-term recovery. Generally, more attention will be focused in gold.
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].