Yellen pushes for stimulus to revive ailing US economy

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Fundamental outlook

 

TREASURY Secretary Janet Yellen is pushing for a major stimulus as she fears the money is not enough to revive the US ailing economy. Americans are expecting the US$1.9 trillion to be passed soon and every citizen is expected to receive a US$1,400 relief package as the Covid-19 crisis continues to wreck havoc on the economy.

US unemployment claims rose by 861,000 for the week ended February 12, worse than forecast. US core retail sales, excluding automobile sales, rose 5.9 per cent, the best recorded in seven months.

UK consumer prices gained 0.7 per cent in January. Core prices climbed 1.4 per cent on an annual basis. Both data reports were better than expected.

British retail sales fell 8.2 per cent in January, the worst since April 2020. Net borrowings by public sectors for January reached eight billion pounds, much lower than the previous month’s 26.12 billion pounds.

UK Prime Minister Boris Johnson attended the G7 meeting on Friday and pushed for faster vaccine development. UK is currently facing a new Covid-19 strain which has seriously dampened the national economy. Crude prices have been rising and WTI reached US$60.00 per barrel due to the weather changes in Texas, thus affecting oil producers output.

 

Technical forecast

 

US dollar/Japanese yen topped 106 but did not hold well above this benchmark. We foresee the trend could trade sideways but prone to fall due to the weakening dollar. A tight range is expected from 105 to 106 until the movement comes out of this consolidation.

Euro/US dollar traded in a tight range last week but stood above 1.2030 support. We reckon the market movement might be contained from 1.20 to 1.22 but prone to an upside potential. The dollar could weaken and this might push the euro upwards. However, beware if the trend dives below 120 support.

British pound/US dollar reached a near three-year high after the trend closed above 1.40 on Friday. There is a potential to drive up to 1.42 if the pound continues its bullish sentiment. Downside support is identified at 1.3850 in case of a drawdown. Due to the current Covid-19 condition in Britain, we would like to remind all traders be cautious in trading the pound.

WTI Crude prices topped US$62 per barrel and fell last week. The market trend reached overbought sentiment and has begun slowing down. We expect the trend to initially remain from US$58 to US$60 per barrel until the prices come out of this range.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded in correction last week due to profit-taking. The market topped RM3,720 per metric tonne and fell after the rollover month. May Futures contract settled at RM3,526 per metric tonne on Friday.

We foresee the range could be contained from RM3,480 to RM3,600 per metric tonne in mixed sentiment before the month-end closing. Falling beneath RM3,480 per metric tonne will likely lead to the next bottom at RM3,400 per metric tonne.

Gold prices dipped last week as the dollar index reached 91. We project the trend could trade sideways from US$1,760 to US$1,800 per ounce, based on the movement of the dollar.

Traders are anticipating the rollout of the US stimulus and its influence on the yellow metal. Beware of a quick dip beneath US$1,760 per ounce but we believe this might be just a short-term market squeeze.

Silver prices have been hovering around US$27 per ounce last week. The market trend is waiting for a clear headway before it starts moving. We believe the initial range could be bound from US$26 to US$28 per ounce, based on the movement of the gold market. Risk control is recommended.

 

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].