LAST WEEK SUMMARY
The news headlines and topic of discussion for the past two weeks have been about the potential of a World War III. With the US President Trump “sending an armada, very powerful” towards North Korea; and North Korea issuing a forceful response, saying it would counter “reckless acts of aggression” with “whatever methods the US wants to take”, we are already seeing signs of a risk-off sentiment in the financial market.
The other two countries that are closely in this potential conflict includes China and Russia, warning that war over North Korea could break out “at any moment”.
THE WEEK AHEAD
Going into next week, while the economic risk events are relatively quiet as compared to the previous week, much focus will be on the development of the tension between the US and North Korea.
Some key instrument to keep an eye on include –
- Japanese Yen
- US Dollar
Gold ended the week at a decision area – whether we are going to see either a correction for more upside, or a reversal to the down side. Taking into consideration the current risk sentiment, our trade plan for this week is to look for buy opportunities on this safe haven asset.
Zooming down to the 240, price has made a 3-wave move forming the WXY structure, and we expect a 50% retracement back to 1241 area for a long opportunity with a decent risk to reward ratio.
During a potential war crisis, oil prices tend to rally. The fundamental reasoning behind it is straightforward – the demand for oil is definitely going to increase in times of war. With the limited supply of oil in the short run, prices will thus rally significantly.
However, the technicals are showing a possibility that we might see a correction lower soon. Short term trading wise, we do still have some opportunities to look for buy setups targeting 55.15. Once price tag this level, we will be cautious of a potential reversal to the downside.
This Japanese Yen has been strengthening for the past weeks, mainly due to the shift to risk-off environment in the market. During times of market uncertainty, safe haven assets and currencies like the JPY tends to strengthen. Coupled with the recent tension between US and North Korea, we can expect the JPY strength to persist.
Based on the Elliott Wave analysis and forecast, we are however seeing a potential stall and reverse (weakening) on the Japanese Yen. This is slightly counter intuitive, but got us to figure what could be the fundamental catalyst to weaken the JPY during such risk-off market environment.
Perhaps the involvement of Japan in this conflict may be the one reason to weaken the Yen.
*These analysis and forecast are purely based on our own speculation.
While it’s definitely not the time to sell the Yen, we are seeing the 106.80 area as the potential reversal area.
The dollar is a slightly trickier instrument to manoeuvre with. Still have the role of a safe haven, it has the tendency to strengthen during times of uncertainty; however with the direct involvement of the US in this tension, and with President Trump being so vocal about the strength of the US Dollar, it has become difficult to fully grasp the direction of this currency.
Technical analysis is telling us 2 key scenarios how the Dollar will develop – both of which are showing us a long term strength in the Dollar.
Going into next week, we will be seeking for opportunities to buy the Dollar around the 99.80 area. Should that level fail, we will be looking for another opportunity to accumulate the Dollar around the 97.60 area.