Commodity outlook by Tradebulls Securities: Buy silver, natural gas

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

US Dollar index is trading around 98 and is able to sustain above its resistance zone. Previously we have seen that since May 2018, DXY has been unable to sustain above 98 level but this time because of global trade war fears and weakness in GBP and EUR, DXY looks poised to extend its move above 98.50.

Meanwhile, Indian rupee  also looks poised to touch 71 levels according to technical charts, the pattern clearly shows that twice Indian rupee has found resistance near 200-day moving average (DMA) on the daily chart and currently 200-DMA comes at 71. So, we expect the rupee to depreciate further looking at strong dollar and slowdown of inflows in equity market. RBI is also expected to cut interest rate by 25 bps which will further put pressure on Indian currency.

Gold speculators sharply lowered their bullish bets by most in 5 weeks. Gold bounced from $1268 but stop shorts at $1287. Sentiment for gold is neutral but there is no interest in gold. Investors are still persisting with equity market and a strong dollar is not helping gold prices. Gold is in wait and see mode. After EU elections,

Gold needs to see a hard Brexit to catch investors' bid. Gold prices have been trading range-bound and whether or not prices break out depend mainly on how long the trade war with China lasts. Strong dollar is creating headwinds for the market and with today’s US GDP data coming, we might see gold breakout of this trading range. But it's not just gold that is suffering from a listless investor interest. In fact when it comes to market pessimism, silver is in a class all by itself. Pessimism in the silver market rose sharply last week with the trade data showing investors dumping their long positions and increasing their short bets.

The last time speculators were this pessimistic was in November, when silver was trading at a good $14 per troy ounce and we saw silver bounce from $14 to $16. So, we expect silver to see some short covering and refrain investors from going into positional short at the current juncture.

Crude oil again has crawled back up from $67 to $70 in Brent in the two trading sessions after fall from $73 to $67 on account of higher US inventory and trade war concerns. OPEC and some allies including Russia are due to meet on June 25 and 26 to discuss output policy going forward. OPEC is thinking of extending cut through end of the year which will not let crude oil prices fall below $64.

Russian oil production continues to trend lower in May as exports via the Druzhba oil pipeline have been restricted due to a contamination issue, helping Russia to finally fall in line with the OPEC+ production cuts. Crude oil market is focusing on US inventory data and last two times we saw higher-than-expected inventory which led to fall in prices. Today, it is expected that we might see lower-than-expected inventory which might lift the prices up.

Buy Silver near Rs 35800 

TARGET: Rs 36,900 

STOP LOSS: Rs 35,200

Silver is trading near oversold region as RSI_14 is near 38. Historically, we have seen silver retracing around 35-34 levels on the daily scale. Silver price is also far from 20, 50 and 200-day moving average indicating mean reversion is due.  Emergence of ‘harami’ candlestick pattern after big negative candle do indicates that selling pressure may have subsided. We are recommending buy around Rs 35,800 - Rs 35,900 with expected upmove till Rs 36,900 and a stop loss of Rs 35,200.

Buy Natural Gas at 181 

TARGET: Rs 191 

STOP LOSS: Rs 173

Natural Gas is trading in a range of Rs 190 - Rs 177. On the daily chart, it is on the cusp of moving average crossover of 20 day against 50 day. The last time such crossover happened, we saw 25 per cent rally but we don’t expect again such big rally although short-term rally cannot be ruled out. Natural Gas is sitting comfortably in the middle of the range, so we recommend long position with expected target of Rs 191 and a stop loss of Rs 173 on closing basis.

================================

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