OPEC Cartel Agrees to Cut Production
- 10 December 2018
Fundamental Outlook During the G20 meeting in early December, the long-awaited negotiation between U.S. President Trump and Chinese leader Xi have agreed to enter into a 90-day truce of withholding further tariff. Both parties are willing to explore a solution on reducing the trade imbalance.
Soon after the G20 meeting, Huawei CFO Meng Wanzhou is arrested in Canada and faces extradition to U.S. for trial for violation to Iran’ sanction. The U.S. Government claims Meng for authorizing export to Iran after the sanction commences. Market analysts reckon this will elevate the hurdle of negotiating the trade war between the 2 countries.
OPEC cartel and Russia have completed the meeting in Vienna on 6-7 December. The parties agree to jointly cut daily production by 1.2 million barrels despite the opposition of President Trump. On Friday, Crude prices boosted and pushed the Dollar lower. Gold prices also climbed to 5-month high at USD1245 /oz as safe haven relatively to Dow market slid.
Last week, the U.S. 10Y-Bond yield fell below 3.0 percent and has flattened the yield curve, causing a sell-off sentiment in Dow markets. FED policymakers have been giving hints on slowing down plan while exercising patience on rate hike, with hope to lift the stock markets on recovery.
Technical Forecast USD/JPY traded lower last week as Dollar receded. Basically, the market has been moving from 112.30 – 113.80 range in sideways consolidation. This week, we forecast the trend will continue sideways trend but prone to fall after mid-week if Dollar weakens further. Lower target is identified at 111.00 in case of bear trend while topside resistance remains unchanged.
EUR/USD is narrowing into a flag formation on the day-chart. This week, we foresee the support will be very firm at 1.1300 level and the trend will probably drive up higher. First target is set at 1,1500 but possible to advance higher if Dollar recedes over the year-end season. Long position should be safeguarded with risk control in case of falling beneath 1.1300 level.
GBP/USD is currently standing 1.2700 support as the trend is coming to a cross path. Coming Wednesday (Asia hour), British Parliament will vote for the support of BREXIT deal that will implement in next April. Due to prior objection on majority basis, analysts project the disagreement to sign the pact may oust Prime Minister May or even case a collapse in British Government. Technically, we have identified the market range to move from 1.2700 – 1.2900 region and extension beyond this constriction will depend on the outcome of U.K. Parliament.
Gold prices have crossed above EMA200 line on day-chart and charts 5-month high above USD1245 /oz. This week, we reckon the trend might advance higher with support emerging at USD1235 /oz region. Technically, the bulls may reach USD1275 /oz area relatively to lower Dollar strength. However, this is based on the projection that aforementioned support is remaining intact throughout the whole week.
WTI Crude prices have been standing firm at USD50 /barrel recently. The affirmative decision of OPEC members in cutting oil production will add boosting power in the market trend in coming week. However, we foresee the range will be contained from USD50 – USD58 /barrel due to year-end season amid lower market participation. Observation on Dollar strength inversely to Crude prices is recommended as they will be closely correlated in early January.
Silver prices have begun to advance after the market formed a very strong base at USD14.00 – USD14.20 /oz region. Technically, we foresee the trend will be prone to drive higher but temporary resisted at USD15.00 /oz region. On hind side, the pierce above this resilient region sometime in January could lead to a very strong breakout since the XAU/XAG ratio is revealing a great potential of reversal at 85.00 level.
Crude Palm Oil (FCPO) Futures on Bursa Derivatives traded in small range but prone to bearish force. Demand fell from regional countries as traders ware wary of stiffening trade war. February contract closed at RM1998 /MT and slipped below the RM2000 /MT benchmark. This week, we forecast the trend will reverse if the support at RM1950 /MT could hold the market well. A potential upside might reach RM2100 /MT if general commodity prices climb.
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DAR Wong and Chong HC are the market strategists in APSRI on CPO markets. DAR has 29 years of trading and hedging experiences while HC trades for 11 years and now coaches institutional customers. They can be reached at www.pwforex.com