Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls:
Dollar index continues to oscillate between 93.30-94.70 since past 4 weeks. The uptrend seems to be exhausting with a daily scale showing lower top and lower bottom formation. However, DXY refuses to trade below 93.30 and buying emerges around that level where momentum carries it till 94.70 before exhaustion creeps in and sellers try to gain upper hand. This seesaw movement means Indian rupee too is confined within 68.60-69.10 range. The turning point for a dollar would be when it breaks 93 levels. What is more worrying for the market is flattening the yield curve. The US 2 years and 10 years spread has narrowed to as low as 27 basis points which is lowest since 2007. Increasing yield spread indicates a likelihood of recovery while shrinking spread indicates a likelihood of recession one year forward. We continue to advocate that rupee needs to break 68.50 in Future if the currency wants to appreciate meaningfully against Dollar. The correction in crude oil price is a temporary relief to our currency but one needs more correction from Crude if rupee needs to sustain below 68.50.
Gold witnessed short covering this week but it was very short lived as gold again has retraced back below $1245. US imposing additional 10 percent tariffs on China on $200 billion goods had rocked the market especially base metals and gold also suffered set back as this global scale trade war is making dollar stronger. Only recovery above $1275 will bulls have upper hand. Currently, with uncertainty regarding trade war we expect gold to remain sluggish. Silver too is expected to remain weak as there is no fundamental reason for silver to beat gold at this juncture.
Crude Oil saw biggest one day fall in two years as Saudi Arabia hiked its oil output in June. Market shrugged off decline in US inventory and instead concentrated on the increasing supply from Saudi Arabia, Russia and Congo. Iraq also has started increasing its production and so prices have come under pressure. However, it will take strong sellers to break $72 in Brent. We would like to wait for a couple of days before we can determine the trend in crude oil
Base metals are witnessing fire sale thanks to trade war instigated by the US. The additional 10 percent on $200 billion goods from China broke the camel’s back. Base metals were already reeling under pressure and now even any short covering is getting quickly sold into. Market is trading on sentiment rather than fundamental and disregarding every technical level. We advice investors not to catch a falling knife at this time as Beijing will respond against the additional tariffs and will again put pressure on base metals.
Buy Natural Gas
TARGET: Rs 200
Stop loss: Rs 190
Natural Gas continues to trade in its range of 190-200 since past 7 trading session. On a daily scale, 200 day moving average comes at 190 which indicates a good support for this commodity. Twice in last 2 trading session, Natural Gas has bounced from level of 191.80. RSI_14 is near to oversold region at 32 so we are expecting the commodity to reverse near its mean of 196 and above. So we recommend taking long position with expected move till 200 and stop loss at 190.
TARGET: Rs 138
Stop loss: Rs 145
Aluminum on a daily scale is trading below its 200 day moving average. Historically we have seen that whenever this commodity breaks below 200 day moving average, we see average fall of 4 to 5 percent. The short term moving average has already generated sell signal and it is currently trading below its 13 day moving average which means the trend is weak. RSI_14 has just entered oversold region at 29 but there is no hint of positive divergence so the following negative trend is expected to continue. We recommend creating a short position with expected move till 138 and stop loss above 145.
Disclaimer: The analyst may have positions in any or all the commodities mentioned above.