Commodity outlook and top trading ideas by Tradebulls

Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls.

Dollar index is flirting with its weekly resistance area of 95.10. This week DXY got boost from US Fed chairman stating that US economy is robust and inflation is under control. He expects rate hike to continue which immediately started rally in DXY and sell off in Gold and Silver. We expect Indian rupee to depreciate against strong dollar in near term and test the levels of 69-69.20 in future contract. Any appreciation in rupee may only come if USDINR Fut can sustain below 68.50.

Weakness in precious metal prices is not over yet, but prices are close to the bottom. Gold producers & merchants cut both long and short positions which suggests gold is being driven by speculators and true physical market activity is low. Gold and Silver is trading at seven month low thanks to strong US dollar. Gold had broken the critical support of $1235 in COMEX and is now trading at $1222. Gold bulls were severely pummeled on Tuesday after gold’s failure to maintain support above its July 2 price low. We believe bears are in control and don’t foresee any significant bounce back unless $1275 is taken out by bulls. Next target for Gold comes near $1210 and psychological support of $1200. Higher interest rate levels in the U.S. will support carry trade positions in the USD and this does not bode well for those holding bullish positions in gold. Silver is currently offering no help as gold trend remains bearish.

Crude Oil prices dropped sharply this week on back of increase crude exports from Saudi, UAE and Kuwait. Libyan port coming online has helped in increasing crude oil supply in the market and crude oil prices reacted accordingly. Yesterday we saw some bounce in crude and now that Brent crude is near its 200 DMA around 70, we expect crude oil prices to consolidate between $71-$75 in near term. Another factor for crude oil prices declining by more than $3 on Monday was US Treasury Secretary Steve Mnuchin stating that some crude importers may receive waivers to continue buying supplies from Iran, despite U.S. sanctions on the Middle Eastern country. One of the more concerning thing about the market structure today is that the curve has gone from a steep backwardation to essentially flat. This indicates that market is not expecting any short supply in future. Another short-term concern came via reports that President Trump was contemplating an SPR (Strategic Petroleum Reserve) release to the tune of 30 million bbls to push crude oil prices lower.

Buy Crude 
TARGET: Rs 4,880
Stop loss: Rs 4,580
 

Crude oil prices bounced back from lows of 4585. Yesterday high US crude oil inventories also failed to push prices lower and crude prices tested the recent low of 4585 twice and bounced back from that level indicates that bottom has been placed temporary. Prices not reacting to negative news means sellers have exhausted their resources and short covering may come. Technically, Crude oil has closed above its 50 day moving average and short term 13 and 20 day moving average have started curving upward. Crude oil also made hammer candlestick pattern at 4585 after 5 negative sessions which also concurs with our view that rebound is expected from current levels. We recommend creating long position with expected target of 4880 and stop loss below 4580 on closing basis.

Sell Nickel
TARGET: Rs 885
Stop loss: Rs 937
 

Nickel is trading below its critical support of 910 and we expect the weakness in base metal to continue, partly on dollar strength and partly on trade war fears. The sentiment is negative and all major indicators are confirming sell signal, be it RSI_14 or Stochastic oscillators. We expect Nickel to test 885 levels where its 200 day moving average on daily scale comes. There is no divergence in RSI_14 and ADX is pointing to strong sell signal and thus we recommend short position with expected target of 885 and stop loss of 937.

Disclaimer: The analyst may have positions in any or all the commodities mentioned above.