Tuesday, July 5

Powell backs interest rate increase until inflation declines

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Fundamental Outlook

 

US retail prices rose 0.9 per cent in April, below forecast. Core retail prices, excluding automobiles, gained 0.6 per cent, exceeding forecast. Federal Reserve chairman Jerome Powell said he will back a possible interest rate increase until US’ inflation comes down.

The People’s Bank of China cut its key interest rate for long-term loans o reduce mortgage costs and to boost the property sector’s recovery. The five-year loan prime rate has been lowered from 4.6 per cent to 4.45 per cent, the biggest cut since 2019.

A member of European Central Bank hinted that the policymakers might raise interest rate very soon for the first time in a decade. The credit crunch could come in July after the central bank has finalised the new economic forecast in June.

British inflation rate surged nine per cent in April from a year ago, making a record 40-year high. The pound has recovered from the recent low at 1.20 and reached 1.25.

 

Technical forecast

 

US dollar/Japanese yen fell slightly last week and beneath 128 before the weekend. We forecast the resistance will stay strong at 1.2950 and the overall range is expected to be contained from 1.2750 to 1.2950 region. The market is prone to fall anytime once it sinks beneath 1.27 support.

Euro/US dollar traded in recovery above 1.04 last week. The trend will likely be supported at 1.0450 and might go into a sideways consolidation. We target the range to trend between 1.0450 to 1.0650 in mixed sentiments. The potential rate hike in the coming months from European Central Bank will be a good catalyst to push the euro into a recovery.

British pound/US dollar traded in a slight recovery last week with the euro. We foresee the trend mightl be supported at 1.2350 and the overall sentiment is expected to remain firm. The price movement is expected to trade from 1.2350 to 1.2550 region with bargain-hunting activities. Breaking above 1.26 will be a sign for a new bullish trend.

WTI Crude prices topped off US$115 per barrel last week. The market is also well supported at US$105 per barrel. This week, we foresee the trend will likely stay within this same range amid a consolidation. Traders might begin to adopt pick-bottom strategy while expecting another jump in crude prices in June.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives recovered before the weekend after the rollover activities pushed down the demand on last Monday. Indonesia has announced the lift of ban on exporting Palm oil from May 23. August 2022 Futures contract settled at RM6,119 per metric tonne on Friday. This week, we expect an initial sideways trend will occur from RM5,900 to RM6,300 per metric tonne. Beware of a breakout in either direction that will capture traders off-guard.

Gold prices dipped beneath US$1,800 per ounce and bounced last week. We have identified a firm support at US$1,820 per ounce in the coming week. The market range is expected to be contained from US$1,820 to US$1,850 per ounce while traders adopt mixed positions. The market is expected to remain volatile this week.

Silver prices reversed from US$20.50 per ounce bottom last week. The oerall market trend is still weak and could be trading sideways again. We predict the trend will consolidate and the support will likely emerge at US$21 per ounce. Topside resistance is expected to be still resilient at US$22 per ounce for the time being.

 

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.