Thursday, February 2

US Treasury warns of rising debt

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Fundamental Outlook

 

US Treasury Secretary Janet Yellen warned that the national debt will likely hit its statutory debt limit soon. She urged Congress to take extraordinary cash management measures before the credit default to prevent default and irreparable harm to US economy and the livelihood of Americans.

The U.S. consumer prices fell 0.1 per cent in December. Inflation rose 6.5 per cent on an annualised rate, down from 7.1 per cent annually in November.

Federal Reserve chairman Jerome Powell said monetary policy will remain independent and sometimes become unconventional to political influence. His remarks came on the back of rate hike actions in 2016 that was strongly opposed by former President Donald Trump.

China has opened up the outbound travels for citizens and this has strongly lifted the European markets. However, some European countries have tightened the rules for Chinese visitors.

 

Technical forecast

 

US dollar/Japanese yen dropped off 132.50 last week and settled at 127.80 on Friday. We foresee the trend will likely dip further, in line with the weaker dollar due to the fiscal cliff in US’ debt limit. We target the bears might reach 125 and 120 in the most extreme case. Topside resistance is identified at 129.50 level.

Euro/US dollar pierced above 1.0750 resistance and settled at 1.0830 before the weekend. We set the first upside target at 1.10. Further weakening of dollar will likely push the euro to reach 1.12 if negative news emerges in the market. Support is identified at 1.0750 and should not be violated unless the trend turns bearish.

British pound/US dollar saw the initial momentum of rising on Friday. We forecast the trend will likely sit on 1.2150 and continue to rise. Topside target lies at 1.2450 in line with the weakening dollar. Traders are reminded to control their risk in case the price falls beneath 1.215.

WTI Crude prices have been moving according to our forecast within US$70 to US$80 per barrel. Moving forward, we presume the uptrend might pierce above US$80 per barrel and reach US$88 per barrel this week. However, failure to conquer above US$80 per barrel will likely turn down and consolidate in a tight range from US$76 to US$80 per barrel.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded lower last week but still supported at RM3,750 per metric tonne. Demand has weakened from China due to lesser activity on rising pandemic cases. March 2023 Futures contract closed at RM3,842 per metric tonne on Friday. We foresee the trend might take a quick dip beneath RM3,800 per metric tonne and bounce up. Topside resistance lies at RM4,000 per metric tonne but abandon your long-term view if the market breaks beneath RM3,750 per metric tonne.

Gold prices broke above US$1,880 per ounce resistance and landed at US$1,920 per ounce on Friday. We expect the bulls to continue its upward journey and reach US$1,970 per ounce due to weaker dollar. The support has risen to US$1,900 per ounce level. Traders are reminded to stay prudent ahead of the Federal Reserve meeting.

Silver prices stayed beneath US$24.50 per ounce. We expect the market to trade sideways from US$23.50 to US$24.50 per ounce while major focus will be on the gold market. However, rising above US$24.50 per ounce will likelylead to US$25 per ounce as our next target.

 

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