Tuesday, August 9

ECB to trim bond purchases

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Fundamental outlook

 

IN the eurozone, inflation hit a 10-year high of three per cent in August, while 2Q gross domestic product exceeded expectations with a two per cent gain quarter-on-quarter. European Central Bank (ECB) officials have concluded they will trim emergency bond purchases over the coming quarter in response to the rising inflation. Chairwoman Christine Lagarde said ECB is not a tapering exercise and promises to keep borrowing cost low.

The US jobless claims for the week ended September 4 fell to 310,000, while still below forecast, it showed some recovery in job markets. Last week, Dow benchmark fell throughout the five trading days and closed at 34,607 level on Friday, due to fear of the resurgence in Covid-19 with the spread of the Delta variant.

China’s trade balance rose in August by 376 billion renminbi with exports up 25.6 per cent while imports climbed 33.1 per cent from a year ago. Officials from the People’s Bank of China commented the policymakers will not embark on a large-scale, flood-like stimulus.

 

Technical forecast

 

US dollar/Japanese yen traded sideways last week from 109.50 to 110.50 region while waiting for a clearer direction of the dollar. We shall wait for the trend to move in either direction. Upon the breakthrough, an extension of another 50 pips could occur in cautious trading.

Euro/US dollar traded in a slight decline last week but remained within 1.18 to 1.19. We foresee the range might extend lower but still supported at 1.175. The overall movement could be contained from 1.175 to 1.19 until we see a new breakthrough in the near future.

British pound/US dollar bounced off 1.375 support last week. We expect the trend to remain from 1.38 to 1.39. Fundamentally, both euro and pound are waiting for the dollar’s trend. Traders are reminded to be cautious.

WTI Crude prices stayed within US$68 to US$70 per barrel last week. There is no catalysts in the market, for now. Traders are reminded to be cautious in case of an unexpected breakthrough beyond this period of consolidation.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives turned down from RM4,460 per metric tonne last week. Traders took profit before the rollover this Wednesday and prepared to establish new positions during the new active month. November Futures contract settled at RM4,279 per metric tonne on Friday. We predict the trend might test RM4,150 per metric tonne again before turning up. The overall range is expected to move from RM4,150 to RM4,350 per metric tonne.

Gold prices failed to cross above US$1,840 per ounce last week and turned down instead. We expect the gold market couldl test US$1,770 per ounce support before encountering bargain-hunters. The overall range is expected to be contained from US$1,770 to US$1,810 per ounce while strong demand might emerge from the bottom. The dollar will be the main catalyst in moving gold prices on the inverse direction.

Silver prices headed down below US$24 per ounce on Friday and disappointed traders. We expect the support to emerge at US$23.30 per ounce and lift demand. The overall range is expected to be contained from US$23.30 to US$24.30 per ounce. Beware of the upswing above the US$24.30 per ounce that needs traders to manage their risk.

 

Dar Wong has more than 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.