Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls:
The dollar index has retraced somewhat after FOMC meeting minutes which states that the Fed may pause increasing interest rates. The rollover effect was buying rush in equity and precious metals market. If we look at Indian rupee, it is expected to trade in the range of 71.80-70.80. 50% retracement of the recent swing high of 71.59 and low of 70.50 comes at 71.04 and if currency manages to sustain below that level, then we may see some more bullish trend. Otherwise, expect the currency to remain sideways.
The gold price has hit 10-month high in dollar terms as global growth concerns have aroused. Dovish stance among the world's leading central banks has also boosted gold. Gold started the latest week with a bang and gave the bulls something to cheer. We are getting closer to the point where we can likely expect to see the retail crowd jumping onto gold’s bandwagon. The gold market will continue to shine through 2019 as investors have fewer options in the face of lower interest rates, slower economic growth and the rising risk of a global recession. Gold has established a classic stair stepping pattern where rallies are followed by brief lateral consolidations, then repeated. Gold needs to close below $1300 or 33000 in MCX for a trend reversal. Target still are open for 34000 and 34290 in MCX on the upside. Given the steady fall in US real rates, the dollar is likely to come under renewed downward pressure, underpinning the silver rally. Silver may lose some momentum if it trades below 40,000 levels. At present, gold is still outperforming silver and we are seeing silver upside because of base metal push. Silver Speculators lowered their bullish bets for the 2nd week in January.
Crude has hit 3-month high as OPEC led output cuts have started in the market. Brent has broken the resistance of $64 and now is near $66, next resistance comes at $68 which is 50% retracement taken from low of $49 to high of $86 where we expect Brent may take some breather. From here we still expect crude to test levels of 4150 in MCX. Any loss in momentum will come below 3900. Looking at the run-up in Crude, we expect crude to retrace somewhat from here but the underlying trend still remains bullish. OPEC production cuts and record output from the US widened the spread of Brent and WTI. The spread was $6.50 in January which has widened to $10. Historically, a rise in the Brent premium has been a bullish sign for the energy commodity. The increase in the spread is not because of geopolitical concern in the Middle East but because of production cuts.
Target Price: Rs 135
Stoploss: Rs 130
Aluminum has taken support around 130 for 6 consecutive trading sessions out of 7. It is the only base metal which has not participated in the rally. RSI_14 is near 48 and we may see momentum on the upside accelerate above 50. Aluminum has broken out from the resistance at 132.50 and next resistance comes at 135. Short term moving average has started curving upwards hinting change in trend. So we recommend long aluminum from current rate with expected target of 135 and stop loss of 130.
Buy Natural Gas
Target Price: Rs 200
Stoploss: Rs 178
Natural Gas failed to break 2018 low. Selling pressure has subsided as last Thursday’s bearish inventory failed to push prices down. In short term charts, natural gas is deeply in oversold territory and we are expecting some bounce from current level. Selling pressure has clearly exhausted as it is now consolidating near 182-185 range. RSI_14 has reversed after being in oversold region so we are recommending long with target around 200 and stop loss below 178.
Disclaimer: The analyst may have positions in any or all the commodities mentioned above.