Global market turns bearish as US raises interest rates

 

Fundamental outlook

 

LAST Wednesday, the US Federal Reserve raised the benchmark interest rates by another 75 basis points and indicated that it will keep increasing rates well above the current level. Fed fund rate stood at 3.25 per cent now but Fed officials hinted that the rate will likely be raised until 4.6 per cent in 2023. Dow market shed 522 points after the rate hike announcement.

The dollar index (USDX) climbed before the weekend to 112.80, reaching the highest level since May 2002. The strong dollar has pushed the European and Asian currencies to dive while stock markets tumble.

On Thursday, the Bank of England increased the interest rate by 50 basis points and bringing the benchmark rate to 2.25 per cent. This is its seventh consecutive rise, reaching a level last seen in 2008. Rising energy cost and rising unemployment rates are main concerns among British citizens amid the devaluation of asset prices.

The British pound plunged to 1.0860, the lowest recorded since 1985 after the rate hike. Policymakers warned of a recession before the year-end as stagflation extends its claw into the UK economy.

 

Technical forecast

 

US dollar/Japanese yen topped 145 last week and fell to 140 after interventions from the Bank of Japan. The market resurged to 143.30 on Friday’s close, reaching neutral prices. This week, we forecast the resistance will likely emerge around 144 and the trend will likely fall again. The downside support is identified at 140 for the time being. Traders are reminded to stay cautious of unexpected catalysts.

Euro/US dollar attempted the 20-year record low at 0.9690 on Friday. We see a support at the current region of 0.96 to 0.97. The trend might move in a sideways pattern from 0.96 to 0.975 before finding a new direction. Beware of diving beneath 0.96.

British pound/US dollar declined to 1.086 before the weekend close. It is crucial to observe 1.0840 as our ultimate support. The overall range might move from 1.084 to 1.11. Breaking beneath this level will likely trigger a freefall in the market.

WTI Crude prices dropped beneath US$80 per barrel on Friday’s close. We reckoned the trend will likely continue to sink and reach US$75 per barrel as our next support. The overall range will likely be capped at US$85 per barrel in case of a recovery. We expect a softening trend during the last week of September.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded in a narrow sideways trend. December 2022 Futures contract settled at RM3,733 per metric tonne on Friday. We have identified dual supports at RM3,600 per metric tonne and RM3,500 per metric tonne respectively. Piercing above RM4,000 per metric tonne might indicate a surge in market demand.

Gold prices dipped to US$1,643 per ounce on Friday’s close. We expect the trend will likely dive down to US$1,600 per ounce before bargain-hunters step into the market. The overall range is expected to move from US$1,600 to US$1,660 per ounce in whipsaw patterns. The rising dollar will likely put a lid on yellow metal prices.

Silver prices turned down from US$19.50 per ounce last week and became bearish. We expect the range to trade from US$18.80 to US$19.50 per ounce.

However, beware of breaking beneath US$18.80 per ounce that will likely lead to the market diving down to US$17.80 per ounce. The weakness in gold prices might trigger a parallel downfall in the silver’s demand this week.

 

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.

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