OPEC agrees to cut production
Fundamental outlook DURING the Group of 20 (G20) meeting earlier this month, the long-awaited negotiation between US and China saw its President Donald Trump and leader Xi Jinping agreeing to a 90-day tariff truce. Both parties are willing to explore a solution on reducing the current trade imbalance.
Soon after the G20 meeting, Huawei chief financial officer Meng Wanzhou was arrested in Canada and faces extradition to the US for a trial on the violation to Iran’s sanction. The US Government claims that Meng had authorised exports to Iran even after the US commenced a sanction against Iran. Market analysts reckoned this could elevate the challenges of negotiating the trade between the two economic powerhouses.
The Organisation Petroleum Exporting Countries (OPEC) and Russia have completed the meeting in Vienna on December 6 to 7. The parties agree to jointly cut daily production by 1.2 million barrels despite President Trump’s opposition. On Friday, crude prices pushed the dollar lower. Gold prices also climbed to a five-month high at US$1,245 per ounce as investors flee to the safe haven while the Dow Jones market declined.
Last week, the US 10 yearbond yield fell below three per cent and has flattened the yield curve, triggering a sell-off on the Dow markets. Fed policymakers have been giving hints on slowing down its plan while exercising patience on a rate hike, with the hope that this could lift stock markets. Technical forecast US dollar/Japanese yen traded lower last week as the dollar receded. The market has been moving from 112.30 to113.80 in sideways consolidation. This week, we forecast the trend could continue sideways trend but it is also prone to fall after mid-week if the dollar weakens further. We have pegged a lower target at 111 in case of a bearish trend while topside resistance remains unchanged.
Euro/US dollar trade has lowered to a flag formation on the day-chart. This week, we foresee the support will be very firm at 1.13 and the trend will probably go higher. The first target is set at 1.15 but there is a possibility of it advancing higher if the dollar recedes over the year-end season. Long position should be safeguarded with risk control in case of falling beneath 1.13.
British pound/US dollar is currently standing at 1.27 as the trend is coming to a cross path. On Wednesday (Asia hour), the British Parliament will vote one the support of the Brexit deal that will be implemented in April 2019. Based prior objections, analysts project the disagreement to sign the pact may oust Prime Minister Theresa May or even a collapse of the British Government. We have identified the market range to move from 1.27 to 1.29 and any extension beyond this constriction will depend on the outcome of the UK Parliament’s on the Brexit deal.
Gold prices have crossed above EMA200 line on day-chart and charted the five-month high above US$1,245 per oz. This week, we reckoned the trend might advance higher with support emerging at US$1,235 per oz region. Technically, the bulls may reach US$1,275 per oz relatively to the weakening dollar. However, this is based on the projection that the aforementioned support remains intact throughout the week.
WTI Crude prices have been standing firm at US$50 per barrel recently. The affirmative decision of OPEC members in cutting oil production will boost the market trend in the coming week. However, we foresee the range will be contained from US$50 to US$58 per barrel due to lower market participation in view of the year-end holiday season. Observe the dollar strength inversely to crude prices as they will be closely correlated in early January.
Silver prices have begun to advance after the market formed a very strong base at US$14 to US$14.20 per oz. We foresee the trend will be prone to go higher but it could be temporarily resisted at US$15 per oz region. If it goes above this resilient region sometime in January, it could lead to a very strong breakout as the XAU/XAG ratio is revealing a great potential of reversal at 85 level.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded in a small range but it is prone to bearish force. Demand fell from regional countries as traders ware wary of stiffening trade war. February contract closed at RM1,998 per MT and slipped below the RM2,000 per MT benchmark. This week, we forecast the trend will reverse if the support at RM1,950 per MT could hold the market well. A potential upside might reach RM2,100 per MT if general commodity prices rise.
Dar Wong is a professional in the financial industry, based in Singapore with 29 years of global trading experiences. The expression is solely his own. You may reach him at dar@pwforex. com.