Fundamental outlook
LEADERS of the Group of Seven (G7) nations pledged a donation of one billion Covid-19 vaccine doses to low-income nations while US President Joe Biden said US is committed to giving 500 million doses worldwide, with no strings attached. Meanwhile, finance ministers from G7 countries backed up a new plan to implement a global corporate tax plan at a minimum 15 per cent.
US inflation gained five per cent in May on a year-on-year basis, the highest recorded since 2008. The market is showing rising inflation again that could trigger a tapering programme by Fed policymakers by year-end.
US Treasury Secretary Janet Yellen said a higher interest rate might be good for the economy as it could contain the rising inflation. Fed policymakers are ready to prepare an asset tapering programme worth US$120 billion monthly stimulus. Market players are watching the FOMC meeting on this issue next week.
China consumer prices grew 1.3 per cent in May on an annual basis, the highest eight months but still below forecast. China bought US$13.11 billion dollars’ worth of goods from the US in May, down from US$13.94 billion in April. Data showed the trade surplus with US has grown as China bought fewer goods.
European Central Bank (ECB) retained interest rates and commits to purchasing 1.85 trillion euros in bonds until March 2022 as part of its Pandemic Emergency Purchase Programme (PEPP). This policy remains a status-quo despite the uptick in inflation.
Technical forecast
US dollar/Japanese yen traded above 109.20 last week but moved in a small range. We foresee the market trend could be contained from 109.20 to 110.20. There is still no clear indication on these currencies’ movement.
Euro/US dollar dipped on Friday as the dollar rose. The market closed at 1.2109 for the weekend with some selling pressure. Resistance could emerge at 1.2160 and trend could fall to 1.20. We expect market sentiment to be weak for the time being as the dollar might struggle to recovery.
British pound/US dollar has been trading in a narrow range for the past weeks with strong resistance at 1.42. We presumed the trend could fall once it breaks below 1.405. Traders are reminded to stay cautious.
WTI Crude prices inched up to US$70 per barrel last week. Demand has been slow for this commodity compared with other energy commodities. We reckoned the market prices could slide down to US$66 per barrel. The overall range is expected to stay within US$66 to US$71 per barrel but stay cautious in case the bulls pierce above US$71 per barrel resistance.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives slid as demand fell in the regional market. The market lost ground at RM4,000 per metric tonne before declining further. August Futures contract settled at RM3,844 per metric tonne on Friday. The trend might continue to dip to RM3,600 per metric tonne due to rollover activities. Resistance could emerge at RM3,900 per metric tonne upon a recovery.
Gold prices fell off US$1,900 per ounce on Friday after the dollar recovered. We forecast the trend will be making another correction while contained from US$1,860 to US$1,900 per ounce. Traders are mostly collecting new long positions every time the trend retraces downward. Generally, investors are still optimistic on the upside potential of the market.
Silver prices hovered around US$28 per ounce last week with no clear direction. The market has yet to start the bullish trend while waiting for the yellow metal to lead the uptrend. The support could stay firm at US$27.40 per ounce in case of a drawdown. The overall range is expected to be contained from US$27.50 to US$28.50 per ounce with potential to linger at the bottom region.
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.