US, UK increase interest rate

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Fundamental outlook

 

US Federal Reserve raised the benchmark interest rate by 75 basis points, the highest increment since 1994. US Fed chairman Jerome Powell said another 50 to 75 basis points hike is expected in the next Federal Open Market Committee (FOMC) meeting.

The European Central Bank said policymakers would devise a new instrument to tackle the fragmentation of bond risk and price rout. No further details were given. European stocks fell last week due to fear of a rate hike.

The Bank of England raised the benchmark rate by 25 basis points to 1.25 per cent, the highest rate since 2009. Policymakers predicted that the inflation could hit 11 per cent towards the end of the year. The central bank also foresee the economy in could shrink by 0.3. per cent in 2Q.

As the Ukraine-Russia war extended into its fourth month, European countries are expecting a shortage supply of natural gas as the region moves into the autumn and winter seasons. President Vladimir Putin said that the Russian military is forced to enter Ukraine due to the expansion of NATO forces in Eastern Europe.

 

Technical forecast

 

US dollar/Japanese yen hovered around 135 with support emerging at 132. We forecast the trend will likely be top-ish at 135 while selling pressure will likely ambush above 135.50.

For the time being, range trading will likely continue to move within 132 to 135.50 region in mixed activity.

Euro/US dollar tested the 1.04 support again last week. This week, we expect the trend to hold well above this support but stay limited to the 1.0650 resistance. Swing trading is expected as market traders are still observing the dollar’s movement as a catalyst to decide the euro’s trend.

British pound/US dollar bounced off 1.20 support last week. The market is moving into a consolidation phase and will be likely range from 1.20 to 1.24 this week. Traders are reminded to trade cautiously as we expect the market to be in a whipsaw pattern.

WTI Crude prices fell last week as US rate hike triggered funds to flee into the stronger dollar against Asian currencies. We expect the trend to re-test US$105 per barrel if the bears continue to slip. Topside resistance is identified at US$115 per barrel in case of a technical recovery. Traders should exercise caution and be patient in picking bottoms.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded lower after the rollover last Wednesday. Crude prices fell and affected energy prices with edible oil. Septermber Futures contract settled at RM5,456 per metric tonne on Friday. This week, the market is supported at RM5400 per metric tonne and will likely trade in recovery with topside resistance emerging at RM5,800 per metric tonne. However, breaking beneath RM5,400 per metric tonne might lead to RM5,300 per metric tonne.

Gold prices traded sideways last week as bargain-hunters begin to pick bottom at US$1,805 per ounce. We reckoned the market movement will move within US$1,805 to US$1,860 per ounce. However, piercing above this range will likely attempt a higher target at US$1,880 per ounce.

Silver prices bottomed off US$21 per ounce. The market should follow gold prices’ recovery. We target the trend will be supported at US$21 to US$21.40 per ounce and will likely pull up to US$22.50 per ounce for a recovery. Bargain-hunters will likely emerge in the market once they have filled up the gold positions.

 

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 [email protected]alaa.sg.










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