Fundamental outlook
ON Friday, the US Dow benchmark plunged 905 points on closing from fear of a new Covid-19 variant, making its biggest fall in 2021. The WTI Crude prices slid 13 per cent, the worst recorded this year and settled below US$70 per barrel for the weekend.
Earlier in the week, President Joe Biden announced that he is re-nominating Jerome Powell for a second term as the Federal Reserve chairman and will put forth Fed Governor Lael Brainard as vice chairman. The bond market reacted with higher yields as tapering is known to be part of Powell’s plan before year-end.
A new Covid-19 variant has been detected in South Africa. The US announced it would restrict travel for non-US citizens from South Africa and seven other countries from Monday onwards. The World Health Organisation has named the new variant as Omicron. It said it could take weeks to understand how the variant might affect diagnostics, therapeutics and vaccines.
In Germany, Angela Merkel pushed for fresh lockdowns across the country as the death toll surpasses 100,000. The incoming coalition is resisting the proposal as the new government will be formed and lead by Olaf Scholz in mid-December.
The rest of Europe has gone into a state of frenzy after the announcement of the new variant. In Asia, Hong Kong has detected its first Omicron case, alarming its Asean counterparts which swiftly placed travel curbs on countries affected by this new variant.
Technical forecast
US dollar/Japanese yen lost 200 pips on Friday and settled at 113.30. We predict the trend will be resisted at 114 in case of a retracement. The bears will possibly dive lower amid selling fears. Support is expected to emerge at 112 to 112.50 while traders adjust their positions.
Euro/US dollar bounced off 1.12 support as the dollar declined. The trend might be limited as traders could move towards the gold market. We expect the overall range to be contained from 1.1250 to 1.14 this week. Be mindful if the market breaks beyond either direction.
British pound/US dollar has been flattish as market traders focus on gold and the euro. We foresee the pound could stay limited to 1.33 to 1.34 against the dollar. The new market direction could only occur if it breaks above 1.34.
WTI Crude prices plunged on Friday by US$10 and settled at US$680 per barrel. We forecast the market might continue its bearish sentiment until support emerges at US$62 per barrel. In case of a quick recovery, the resistance could be at US$73 per barrel. Traders reminded to stay cautious.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives closed lower on a weekly comparison after hitting RM5,025 per metric tonne resistance. February Futures contract settled at RM4,851 per metric tonne on Friday. The resistance could remain strong at RM4,950 per metric tonne while prone to make a correction. We expect the bears to test RM4,700 per metric tonne. Breaking beyond will this could reach RM4,400 per metric tonne.
Gold prices have been consolidating for a few days before the weekend. We project the support could be strong at US$1,780 per ounce and likely to regain bullish strength. Initial range will be from US$1,780 to US$1,820 per ounce but piercing above this range could reach US$1,850 per ounce. Traders are reminded to be alert.
Silver prices tested the US$23 per ounce as support on Friday. We expect the market to recover this week at US$24 per ounce. However, beware of breaking beneath US$24 per ounce which could lead to US$23.50 per ounce before bargain-hunting emerges. We believe more attention will be on the gold market.
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 [email protected].