Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls:
US Dollar this week opened gap up and continued to trade positively till 94.88 where again it encountered stiff resistance and now has retraced back to 94.10. The dollar index has risen 2.7 percent in 2018, lifted by both its status as a perceived haven and also because Federal Reserve is tightening its monetary policy. The yield on 10 yearsy T-Bond has turned positive recently as it has fallen from 2.87% to 2.82% which is helping getting gains in Gold. The falling yield also is positive for other emerging countries. It is been 5 weeks since DXY has not been able to sustain above 95 and has retraced back to 94 levels. Technical levels to consider are the immediate resistance at 95 which is its psychological level. On the downside, support is at 93.85(Jun 25 low) and 93.20 (Jun 14 low)
Gold was trading at the critical support of $1235 but has since bounced back to $1255. The latest COT report showed a massive rise in speculative short positions for the second straight week. Speculators are now only net-bullish by a mere 4,000 contracts - some of the lowest levels in the past decade. The rally in gold is purely short covering as massive short positions are getting added. Gold is in the oversold territory so we were expecting a technical bounce back however gold is still not yet out of the woods. It needs to break $1275 and bears near term downside price breakout objective would be pushing the prices below solid support of $1230. This week heavyweight US economic data like non-farm payroll might influence Fed rate hike expectation and eventually will help in determining whether gold has further legs to rally or will again fizzle out.
Crude oil prices still remain elevated inspite of Trump’s statement to OPEC to bring the prices down. The fundamental factors are playing nicely for crude as oil supply disruption in Libya is expected to last longer than previously thought. Also major producers like Canada and Venezuela are also facing supply disruption. Demand is healthy because of global growth and any serious correction in Crude oil is only expected if the prices are breached below $72.
The limelights this week are base metals where we have seen heavy selloff as 6th July is upon us. That is the date when US will implement trade tarrifs against China. There is relentless selling in all base metals with no respite. We expect the bearish sentiment to continue going ahead until market feels that prices are now in deep oversold territory. We recommend investors not to catch falling knife right now as any pullback rally will be weak and will quickly get sold into.
Buy Natural Gas
TARGET: Rs 204
Stop Loss: Rs 191
Natural Gas trading range for past one and half month is 194-207. Currently it is trading at the lower end of the range. We have seen prices reversing from this level. Currently it is taking support at its 50 day moving average. Positive divergence is being seen in RSI_14 on daily chart. We recommend creating long position with expectation of 204 on the upside and stop loss to be maintained below 191 on closing basis.
TARGET: Rs 40,400
Stop Loss: Rs 39,450
Silver is trading above its 200 day moving average. It has also taken support at short term average of 13 and 20. We have seen cross over of short term moving average which indicates that trend has changed. Stochastic Oscillator has also generated buy crossover from oversold territory. Looking at the ongoing momentum, silver is expected to test levels of 40400 and we would recommend initiating long position near 39600 with stop loss of 39450.
Disclaimer: The analyst may have positions in any or all the commodities mentioned above.