Saturday, December 3

US job market rises, analysts foresee rate hike

0

 

Fundamental outlook

 

US nonfarm payrolls gained 528,000 jobs in July, exceeding expectations. Unemployment rate declined to 3.5 per cent. Market analysts foresee the impending rate hike could become more aggressive to contain the inflation heat.

US House speaker Nancy Pelosi visited Taiwan, aggravating China. The Beijing Government chided her provocative trip and warned of serious consequences of violating the sovereignty right of One-China Policy. On Friday, China imposed a sanction on Pelosi and her immediate family for her actions in Taiwan.

Last Thursday, the Bank of England raised interest rate by 50 basis points and brought the benchmark rate to 1.75 per cent. This is the biggest rate hike since the central bank became independent from the British Government in 1997. Policymakers predict the British economy will slip into a recession from 4Q onwards.

The dollar rose on Friday after the US job reports were announced. Gold and crude prices took a dip. Market traders and analysts anticipate the greenback will firm up this week due to a potential rate hike soon. The US 10-year Treasury Bond yield rose to 2.83 per cent on Friday.

 

Technical forecast

 

US dollar/Japanese yen firmed up on Friday after the job market report. We foresee the support will likely emerge at 134 and the trend will probably climb higher.

The target is at 137 before profit-taking activity emerges. Traders are reminded to be cautious in case of a market swing.

Euro/US dollar has been trading sideways, beneath 1.025. The trend might trade inside 1.01 to 1.025 amid mixed sentiments. We foresee the dollar might strengthen a bit, and the euro/US dollar market will likely still be supported at 1.00 in case of breaking beneath the 1.01 support.

British pound/US dollar dipped in a small range last week. We predict the trend will likely be supported at 1.1950 to 1.20 in case of a decline. The trend might bounce but resistance is likely to emerge at 1.215. We reckoned most of the market’s attention will be on the euro instead of the pound.

WTI Crude prices traded beneath US$100 per barrel last week and closed just below US$90 per barrel on Friday. This week, we expect the trend to dip to US$85 per barrel before making a rebound. The overall range is expected to be contained from US$85 to US$92 per barrel while bargain-hunting will likely emerge at bottom prices.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives reversed up from US$3,700 per metric tonne support last week. Malaysia’s government says it will help India meet the demand target of 800,000 tonnes monthly for the next six months. October Futures contract settled at RM3,900 per metric tonne on Friday. We predict the range will rise and trade from RM3,800 to RM4,300 per metric tonne. Stay out of the market if the trend breaks beneath RM3,800 per metric tonne.

Gold prices fell short from US$1,800 per ounce on Friday and closed lower at US$1,774 per ounce. The market is prone to make a technical correction and move down to US$1,740 per ounce. The overall range is expected to trade from US$1,740 to US$1,800 per ounce with chances of declining. Traders should practice patience in picking bottom.

Silver prices met resistance at US$20.50 per ounce last week. We forecast the trend might wane and trade lower with support rising at US$19 per ounce.

The target range will be from US$19 to US$20.50 per ounce amid mixed trading. However, we still believe traders are keen to fish market bottoms in case of a drawdown.

 

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.