DAR Wong: S&P makes new historical high as bond yield sinks

Fundamental outlook

FOLLOWING the expectation of trade talk between US and Chinese leaders in Japan at the coming G20 forum, S&P created new historical high at 2,964 on Friday while the dollar index (USDX) fell to a three-month low at 95.7 level. Gold and crude prices also recovered as the US 10-year bond yield sank to below two per cent benchmark for the first time since November 2016.

The US FED policymakers retained interest rates but remained open to a rate cut in the future. Fed fund rate remained at 2.25 to 2.5 per cent.

On Thursday, US President Donald Trump approved an attack on Iran after an American spy drone was shot down in the territory of the Straits of Hormuz by the Iranian military force. However, Trump retracted the order immediately after it was sent out without giving a detailed explanation.

Five more Chinese companies have been blacklisted by the US Government from buying parts from American chipmakers. Traders are optimistic that the Trump-Xi talk will turn out on a good note.

Xi reiterated that China is willing to negotiate on fair level playing field without compromising the economic interest to the Chinese sovereign. He also stressed that a collaboration of both largest economies in the world will bring growth to the global markets.

European Central Bank president Mario Draghi rejected the comment by Trump saying that ECB policymakers have been introducing stimulus to tank the euro’s value, hence gaining unfair advantages on the exchange rate market. Draghi defended the responsibility and mandate of policymakers to fulfill the growth and stability in the euro region. Targeting at exchange rates as weapon to manipulate the economic changes is not their protocol.

Technical forecast

US dollar/Japanese yen fell after the dollar sank. This week, we presumed the trend would be well resisted at 108 and prone to drop again. Initial range will be contained from 107 to 108 but breaking beneath 107 support will lead down to 105.

Euro/US dollar climbed from 1.12 bottom and closed at 1.1380 on Friday. This week, we expect firm sentiments in the market but some profit-taking is also expected at 1.145. Overall range will be contained from 1.125 to 1.145 region until the trend goes beyond in either direction. Bullish trend is favoured as the dollar is weakening.

British pound/US dollar is supported at 1.25 and closed at 1.275 region on Friday. The Bank of England held rate unchanged and maintained 435 billion pounds in its asset purchase programme. This week, we forecast the initial range from 1.265 to 1.28 and piercing above the resistance will probably climb higher to 1.30. Traders are still waiting for news on the new prime minister from the UK cabinet.

Gold prices rose rapidly last week and reached US$1,400 per oz, a six-year high. This week, the trend will move from US$1,380 to US$1,420 per oz while prone an upside. However, abandon your long-term views in case it falls beneath US$1,380 per oz.

WTI Crude prices have pierced above the previous resistance at US$55 per barrel level. This week, we presume the support will be laid at US$55 per barrel while the expected range will be limited below US$60 per barrel. It is advisable to be patient to capture the bottom entry in case the trend makes a quick retracement at USD$55 per barrel.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives have been trading in a narrow range without new market interests. However, the US dollar/ringgit fell from 4.18 to 4.15 area and indicated a probability of recovering FCPO in the coming week. FCPO September 2019 contract closed at RM2,021 per MT on Friday. This week, initial range is forecast from RM2,000 to RM2,050 oer MT but prone to break on the topside range and attempt RM2,100per MT.

Disclaimer: Dar Wong has 30 years of trading and hedging experiences in global financial markets. The opinion is solely his own. You may reach him at dar@pwforex.com.

Source: The Borneo Post