Fundamental outlook
US is considering an extra US$3.1 billion tariffs on products from Germany, France, Spain and UK, prompting angry responses from European leaders. US claims for jobless benefits reached 1.48 million for the week ended June 20 but total claims throughout the country fell below 20 million. US first quarter (1Q) gross domestic product (GDP) declined five per cent. Expect weaker performances for the following quarter from April to June.
The Federal Reserve imposed restrictions on banks for buyback shares and capped dividend payments after stress tests showed that most banks are uncomfortably closed to the minimum capital levels.
Last week, Florida reported a surge in the Coronavirus Disease 2019 (Covid-19) cases. On Friday, the Dow market closed more than 700 points lower after Texas rolled back on its re-opening measures due to the rise of Covid-19 cases in the state. Huawei company obtained the green light to build a new research and development centre in UK Cambridgeshire. In less than a day after the news release, the US government issued fresh warnings on Huawei on infringing national security.
The International Monetary Fund (IMF) estimated a contraction of 4.9 per cent in global GDP for 2020, lower than the initial three per cent decline predicted in April.
Technical forecast
US dollar/Japanese yen traded largely from 106 to 107.50 last week. We foresee strong resistance at 108 in case of initial pull-up patterns. The trend is prone to decline in the near future after the head-and-shoulder formation. Our next support is identified at 104.
Euro/US dollar showed strong resistance at 1.13. It could lure some selling activities in earlier part of this week. The trend could be supported at 1.11 to 1.115 with bargain-hunting activity. Overall range is from 1.11 to 1.13 the market finds a new direction.
British pound/US dollar turned weak as it settled at 1.233 on Friday. We expect strong selling interest could emerge at 1.245. We expect the bears to explore the region between 1.21 to 1.22 towards the end of this week.
WTI Crude prices traded in a small range while contained from US$35 to US$40 per barrel. We do not expect significant changes in market sentiments as the momentum gradually weakens. Once the prices weaken and approach US$35 per barrel, there is a tendency to decline further to US$30 per barrel.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives weakened last week after the bulls fizzled out at RM2,475 per metric tonne. September Futures contract settled at RM2,368 per metric tonne. We expect traders to begin unloading more positions as the trend gradually turns weaker below RM2,400 per metric tonne. Prices are likely to move down to RM2,300 per metric tonne again as crude prices might head down.
Gold prices hovered at US$1,760 per ounce last week and has shown signs of bullishness. We foresee the market could rise further and reach US$1,800 per ounce level. On the contrary, abandon your long-term view and practice risk control if the market falls beneath US$1,750 per ounce.
Silver prices traded in a tight range from US$17.50 to US$18 per ounce last week. We expect the trend to rise higher once it goes above the aforementioned resistance. Topside potential is open to US$18.50 to US$19 per ounce for the time being while we observe further. Precious metals are well prepared to rise again soon with a potential correction in regional stock markets.
Dar Wong has 30 years of trading and hedging experiences in global financial markets. The opinion is solely his own. He can be reached at [email protected].