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Fundamental outlook
THE Bank of Switzerland surprised the market by increasing the interest rate for the first time in 15 years. The rate hike was adjusted by 50 basis points from -0.75 per cent to -0.25 per cent. Market analysts predicted that the Bank of Japan could be the next central bank that will hike the rates from zero level that has been held for many years.
US non-farm payroll rose 372,000 in June, beating forecast. Unemployment rate remained at 3.6 per cent. Market sentiment pushes to another expectation of rate hike soon to quell inflation.
On Thursday, UK Prime Minister Boris Johnson submitted his resignation and will step down from his office before September. The resignation comes after almost 60 party members from Conservative Party lost confidence in him and submitted a series of resignations within two days.
The euro has fallen to a 20-year low against the dollar at below 1.02. Market traders expect a potential reversal will commence soon after the European Central Bank hinted on increasing rates sometime in July.
Japan’s former Prime Minister Shinzo Abe was fatally shot on Friday while he was making a speech during a campaign event in the city of Nara, Kyoto. The gunman was caught on the spot and the news shocked the world as gun terrorism is rare in Japan.
Technical forecast
US dollar/Japanese yen traded largely in a narrow range from 135 to 136 last week. We expect the trend might begin to dip in correction. The overall range is expected to trade between 134 to 136.50. Topside room is limited at 136.50 in case it struggles to stay above 136.
Euro/US dollar dipped to below 1.02 at a 20-year record low. We foresee that there is no sign of reversal while resistance will likely emerge at 1.05. Market bears are highly prone to diving further to test the value at 1.00. Traders should be prepared to see the weakening strength in the euro in July.
British pound/US dollar broke the 1.20 benchmark and tested 1.19 before it rebound. We predict the trend will begin to trade sideways and consolidate within 1.19 to 1.22. Traders should be cautious of market swings and control risks in case of a violation beyond the aforementioned range.
WTI Crude prices stayed strong at US$100 per barrel after the market dipped to US$96 per barrel and rebound to US$105 per barrel. The trend is expected to continue recovering but stay within US$100 to US$112 per barrel. The dollar index (USDX) is still trading strong at 106 region that puts a lid on the crude recovery for the time being.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives fell below RM3,800 per metric tonne due to the fall in energy and edible oils but recovered before the weekend. September 2022 Futures contract settled at RM4,163 per metric tonne on Friday. We foresee the trend will begin to bottom out and make a recovery. Support may be tested again at RM3,950 per metric tonne while the market is prone to make a sideways trend below RM4,300 per metric tonne.
Gold prices broke beneath US$1,800 per ounce benchmark and reached US$1,740 per ounce. We have identified the next support to emerge at US$1,720 per ounce in case of a drawdown and bargain-hunting activity will likely appear here. Topside resistance lies at US$1,760 per ounce and will continue to put pressure on the trend.
Silver prices sank below US$20 per ounce for the whole last week. We reckoned the trend will trade sideways in a narrow range from US$19 to US$20 per ounce while making moderate recovery. However, beware of breaking beneath US$19 per ounce support that might drive down to test US$18.30 per ounce.
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.
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