Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls:
Commodity Outlook: The dollar index is trading at 2018 high as US rate hike on June 13 is nearly a done deal. Selling off in major rivals like Euro and GBP has been helped dollar index sustaining near 6 month high. PMI data from Europe and Italy’s election conundrums is driving the risk off attitude which is driving US Dollar higher. Market sentiment has taken a step back as traders are looking more toward safe-haven plays such as the yen and Dollar. Coming back to our market, Indian Rupee looks overbought but it is trading above the up trendline since April and any short term reversal may only come below 68.20. So expect the upside to continue till 68.50-68.80. On the downside, we don’t see too much correction and base may start to form around 67.80.
Gold in short term has started staging recovery after falling below $1300. $1286 is where buying has emerged but we expect gold to face headwinds around $1305 partly on the back of strength in US Dollar and secondly the expectation hike of interest rate on June 13th. The lifeline for gold was falling 10 yr US bond yields which cooled down from 3.08 to 3 but still with rising real interest rate, gold will find difficult to sustain above $1306.
Crude oil continues to trade at elevated level near $80 in Brent thanks to robust oil demand. Implied oil demand growth out of China for April reached another all-time high. Leading indicators like car sales in emerging markets remain very strong on a y-o-y basis. Sentiment indicator is hovering around 80% past couple of weeks meaning there are four bulls for every one bear. We expect some short correction and consolidation. Market will grow more fixated on OPEC meeting which will be near end of June. Any further rally may resume after OPEC’s signal that it has no intention of increasing production.
Lead is leading the base metal pack due to physical tightness. Chinese speculators have raised open interest to more than 50% since last week and historically such high open interest is unable to sustain. Moreover lead is near to its Feb high of 172.50 so we expect some correction from that level. Copper and Nickel too looks positive. Nickel LME inventory is at multi year low so we expect support of prices because of depleted inventories. Zinc still is bearish and we would need price action to be above 210 before we can recommend long.
Target: Rs 160
Stoploss: Rs 150
Aluminum is trading in range of 153-157. It has taken multiple support around 153 which coincides with the retracement level of 23.6% taken from high of 177.35 and low of 145.50. The low also coincides with 20 day moving average. Short term double bottom and rounding bottom pattern gives confidence to recommend long position with stop loss of 150 and target of 160.
Target: Rs 31500
Stoploss: Rs 30900
Gold is making higher high and higher low thanks to weakness in Indian Rupee. We have seen gold in COMEX staging recovery in short term. Gold has respected the up trendline and the up trend is under threat only below 30900. The Oscillator RSI_14 with 9 day moving average has given cross over which adds the conviction of going long with target of 31500 and stop loss of 30900.
Target: Rs 4780
Stoploss: Rs 5000
Crude has broken from the rising wedge chart pattern at the top. The pattern is reversal. Crude is in overbought region on all major oscillators. On weekly chart, there is emergence of shooting star at the top in addition of sharp rise in sentiment indicator. Crude needs to correct before it can make new high and that rally will give tradable opportunity so we recommend selling at current price with stop loss of 5000 and target of 4780.
Disclaimer: The analyst may have positions in any or all the commodities mentioned above.