Federal Reserve to begin tapering programme this year
Fundamental outlook
The Federal Reserve stated in its December minutes that the tapering programme will start sometime in 2022 with the raising of interest rates. The tapering exercise is supposedly to reduce the US$8.2 trillion holding in treasuries and assetbacked securities that were being utilised on supporting US’ market liquidity at near to zero interest rates.
American non-farm payroll slid in December as the hiring grew at 199,000 jobs despite unemployment declining to 3.9 per cent. Dow market dropped after the US payroll report as traders anticipate a slower recovery.
The eurozone’s inflation grew five per cent in December, a record high. Market economists commented that policymakers should adopt stiffer stance in combating rising prices. The European Central Bank said that it will be cutting the monthly asset purchases in 2022 but vowed to support any unprecedented stimulus in 2022.
Kazakhstan goes into a civil riot as citizens boycott the rising fuel prices. The country sank into social turmoil as the largest populated nation in Central Asia could not contain the rapid inflation. A Russianled allied security force has promised to support and assist in restoring peace order to the country.
Technical forecast
US dollar/Japanese yen has shown strong resistance at 116 last week. Moving forward, we aim for lower prices this week as dollar is weakening. The range is expected to be contained from 114.50 to 116 region as the trend unwinds. Short traders should beware of unexpected surge above 116 resistance.
Euro/US dollar exhibited an uptrend on Friday as the market reversed above 1.13. We expect the support to remain firm at 1.13 with a potential to rise higher. We aim for the bulls to reach 1.15 as the dollar is showing signs of weakness. Traders should measure their own risk.
British pound/US dollar behaved stayed resisted at 1.36.
There might be a correction that will drive prices down to 1.345. However, a violation above 1.36 resistance will potentially climb to 1.37 before encountering profit-taking. Patience is reminded.
WTI Crude prices ascended to US$80 per barrel last week as the dollar weakened. We project the potential range to be contained from US$76 to US$80 per barrel while trading sideways. In case the trend goes beyond US$80 per barrel, the market might attempt US$85 per barrel as our immediate upside target. Observe the OPEC+ members on their influence on global crude prices.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives saw rising demand last week. March Futures contract settled at RM4,996 per metric tonne on Friday. There is an immediate support at RM4,900 and RM4,800 per metric tonne levels in case of a drawdown. The market might appear to be weakening but we do not discount the bulls that might surge once it breaks above RM5,050 per metric tonne. Crossing above RM5,050 per metric tonne could lead to RM5,200 per metric tonne.
Gold prices fell off US$1,830 per ounce last week and closed below US$1,800 per ounce on Friday. We foresee the trend could recover due to the weaker dollar and the range is expected from US$1,780 to US$1,820 per ounce region. Traders could behave cautiously in the market as the gold market has swung sideways multiple times in the last few months.
Silver prices have shown recent strong support at US$22 to US$22.25 per ounce. We aim for firm prices with expected range from US$22.50 to US$23.50 per ounce. The main focus in the market will still be on gold prices before traders gauge the silver market. However, many long-term investors believe silver prices have reached bottom after the recent drawdown correction.
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 dar@alaa.sg.