Another rate hike likely in July

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Fundamental outlook

FEDERAL Reserve chairman Jerome Powell said there could be another 75 basis points rate hike in July. Policymakers are focused in bringing down the inflation in US. Treasury Secretary Janet Yellen said that a recession is not ‘inevitable’, but US’ inflation is still “unacceptably high” while Ukraine’s war is escalating.

The Dow rallied 823 points before the weekend due to the recovery mode in the market. Traders celebrated the stock benchmark bouncing off 30,000 level.

Currently, Europe receives about 40 per cent of gas supplies from Russian pipelines. The region is now wary that Russia will implement a total shutdown in Autumn. Crude prices fell last week due to a correction but it has not alleviated worries in Europe. British inflation rose 9.1 per cent in May on an annual basis, the highest in 40 years. Traders expect another rate hike will follow by early August.

 

Technical forecast

US dollar/Japanese yen peaked at 136.20, the highest since January 2002. We forecast the trend will trade sideways and stay contained from 134 to 136.50. Traders are cautiously watching the market, expecting a potential reversal soon.

Euro/US dollar has been trading in a very narrow range from 1.045 to 1.06. Traders are observing the market for a potential new breakout soon. The recent bounce-off 1.04 twice has shown a this as a strong support and we are waiting for the likelihood that it could jump above 1.06.

British pound/US dollar has been trading from 1.22 to 1.23 in uncertainty. Traders are all waiting for a clearer picture of this exchange’s trend as the current price pattern has reached an almost standstill. We expect the trend to range from 1.20 to 1.23 amid some swings. Bargain-hunting is likely to emerge in case of a drawdown.

WTI Crude prices tested the US$104 per barrel level as we predicted. We reckoned the support will likely stay strong at US$106 per barrel and the trend will likely recover at US$114 per barrel. Market investors are still watching the Russian-Ukraine crisis closely before deciding their next position. The dollar will act as a catalyst inverse to the crude’s trend.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives fell last week due to waning demand in the market. Losing crude and edible oil have triggered a sell-off in FCPO prices. September 2022 Futures contract settled at RM4,656 per metric tonne on Friday. We foresee the market might break beneath RM4,500 per metric tonne support and drive down to RM4,200 per metric tonne as our next support. Topside resistance lies at RM4,850 per metric tonne in case of a recovery.

Gold prices’ demand waned last week as we expected. We predict a strong support will likely emerge at US$1,820 per ounce and begin to pick bottom. The range is expected to be contained from US$1,820 to US$1,860 per ounce. The ultimate support will likely emerge at US$1,800 per ounce in case of an unexpected fall in prices.

Silver prices hit US$20.60 per ounce and bounced on Friday. We presumed the trend will likely move in a small range from US$20.50 to US$21.50 per ounce with traders picking bottom. Market interest is still very slack until we see a strong surge led by the gold market. The silver is following the gold prices currently and has sunken due to the slow demand.

 

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].