Inflation slows down slightly in US and China

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Fundamental outlook

 

US inflation rose 8.5 per cent in July from a year ago and eased slightly, due to corrections in crude prices. Core inflation, excluding fresh food and energies, gained 5.9 per cent annually and 0.3 per cent on a monthly basis, also down from the previous month.

On Friday, the Dow closed at 424 points gains and S&P 500 added 75 points. Both indexes have made upward gains for the fourth straight week.

China’s consumer prices gained 2.7 per cent in July from a year ago. Producer prices rose 4.2 per cent on an annual basis. Both numbers were below forecast.

European countries are scrambling to shore up energies as the Ukraine-Russia war continues, Germany has recommissioned a coal-burning plant to compensate for supply cut of natural gas from Russia.

British GDP slumped 0.1 per cent in 2Q from a 0.8 per cent gains in the previous quarter. However, it still missed consensus’ expectations, slightly.

 

Technical forecast

 

US dollar/Japanese yen is currently going into a consolidation phase. We forecast the market will be trading from 132to 134.50. Traders are taking a sideways view for now as the dollar’s strength is slowing down due to the reduced heat in inflation. Hence, the US dollar-yen will likely be trapped within this trading range.

Euro/US dollar declined from 1.0350 tops recently. We target the range will likely trade lower and stay contain from 1.02 to 1.35. However, falling beneath 1.02 might lead to the market testing 1.01 as our ultimate support for this week. The overall market sentiment is still leaning strongly towards the dollar’s direction that acts as inverse catalyst to the euro’s value.

British pound/US dollar is trading sideways without a clear direction for now. This week, we predict the support will likely emerge at 1.0250 but stay limited at 1.03. However, beware if the market movement breaks beyond this range in either direction. The release of UK’s economic data might affect the pound this week.

WTI Crude prices have shown firm support at US$90 per barrel. We project the trend will likely continue to rise while sitting on US$92 per barrel. Topside target might reach US$97.50 per barrel but at a slow pace. Fundamentally, we believe the crude will begin to rise only after gold prices stagnate at the top region while traders move their fund out from the metal market to the energy market.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives rose last week as edible oils gained higher ground. The market will likely rollover on Monday and November will become an active month. October 2022 Futures contract settled at RM4,200 per metric tonne on Friday. We shall focus on November month that saw slight discount on Friday. The market trend might correct to RM41,50 per metric tonne if the RM4,280 per metric tonne support is broken. However, the possibility of staying above RM4.280 per metric tonne after Wednesday might lead higher to RM4,800 per metric tonne.

Gold prices rose from US$1,775 per ounce last week and closed slightly above US$1,800 per ounce on Friday. The trend is prone to encounter resistance at US$1,825 per ounce before the bulls fizzle out. Downside support is identified at US$1,885 per ounce in case of a drawdown. As the yellow metal has risen for a month, we expect profit-takings to emerge towards the end of this week.

Silver prices pierced above our previous resistance identified at US$20.50 per ounce but hovered in a sideways trend. This week, we foresee the bulls might continue its uptrend and reach US$22 per ounce. Support will likrly lie at US$20.30 per ounce in case of a drawdown. Some buying demands are expected as the market has gone through a profit-talking phase at US$20 per ounce recently.

 

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].