Fundamental outlook
DOW and S&P markets posted their worst quarterly results since 2020, when the pandemic first erupted. The S&P 500 Index made the most losses in 1H22 since 1970 due to worries of impending rate hikes and rising war crisis in Ukraine. On the first day of trading in July, Dow closed with 321 points gain, showing a strong recovery.
US ISM manufacturing index grew 56 in June and expanded at a slower pace than consensus’ expectations. Market traders are beginning to worry about the possibility of a recession that will come with post-inflation on rate hikes. Fed chairman Jerome Powell reiterated that containing the inflation is an essential job now and Treasury Secretary Janet Yellen mentioned earlier that recession is not inevitable.
The eurozone’s inflation grew 8.6 per cent in June, reaching yet another record high. Policymakers are preparing to raise interest rates for the first time in 11 years. The European Stoxx 600 Index closed at six per cent loss on June 30, making it the worst performing quarter since 2020.
US Government has approved US$820 million assistance to Ukraine for military support. This is much lower than the original budget proposed by President Joe Biden. Russian President Vladimir Putin has expressed no objection to Sweden and Norway joining NATO so long as these two countries are not serving as military bases to NATO forces.
Technical forecast
US dollar/Japanese yen traded in a narrow range from 134 to 136 last week. We presumed that the trend might go softer since the dollar is showing signs of waning. Beware of breaking beneath the 134 support which will drive down the trend to test 132. Abandon your short-term view if it pierces above 136.
Euro/US dollar tested the limit at 1.04 again last week and closed slightly higher on Friday. We expect huge buying interest will emerge below 1.04 in case of a drawdown while the trend will likely bounce. Topside resistance is limited at 1.06 for the time being. Abandon your long-term view in case the trend falls beneath 1.035.
British pound/US dollar also tested the 1.20 support last week before it bounced. We expect some whipsaw trading in the market while bargain-hunters will likely emerge at 1.20. The overall range will likely be contained from 1.20 to 1.225 until the bull pierces above this range.
WTI Crude prices traded sideways and within the range of US$105 to US$116 per barrel last week. We foresee the market will likely gather new buying interest.
The trading range might stay unchanged but the trend will likely stay on the high side above US$110 per barrel. However, beware of piercing above the US$116 per barrel as that will likely reach US$120 per barrel level.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded sideways in uncertainty. Market traders are concerned about the global recession despite surging global inflation. September 2022 Futures contract settled at RM4,703 per metric tonne on Friday. We project the trend is very versatile within the region of RM4,500 to RM5,000 per metric tonne. Market force might work in either direction while depending on the direction of the inflation and crude trend.
Gold prices made a second dip below US$1,800 per ounce on Friday within two months and closed slightly higher. We project the gold will recover with the support emerging at US$1,810 per ounce. The overall range will likely be contained from US$1,800 to US$1,840 per ounce with more buying interest. Traders should watch the dollar’s trend that serves as an inverse instrument to gold prices.
Silver prices dipped beneath US$20 per ounce before the weekend. It is crucial to observe the market if it falls below US$19 per ounce support. We target the overall range will be contained from US$19 to US$21 per ounce. Technically speaking, the market movement might break above the US$21 per ounce to initiate a new uptrend.
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]