Commodity outlook by Tradebulls Securities: Buy Copper, aluminium

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

Indian rupee has started its downward spiraling against US dollar, thanks to a jump in crude oil prices. US President Donald Trump’s decision not to extend the waiver for Iran means more tightening to already tight crude oil supply. Strong dollar is also not helping our case as the Dollar index (DXY) has surpassed May 2017 high. High US Treasury yield and interest rate disparity between the US and Europe has made investors flock to accumulate US dollar.

Back home, the RBI has successfully concluded dollar/rupee swap and we have seen intervention whenever our currency depreciates. In May future contract, USD/INR is trading around 70.28 and set up looks nice for further depreciation till 70.55-70.65. The higher top and higher low formation augurs well for positive trend and we may only see trend reversal if the currency crashes below 69.90.

Gold prices rebounded on Thursday from a near four-month trough but are still below its immediate resistance of $1,281. A couple of closes above these levels would indicate a possible bottom is in. Although, we look for higher prices in the future in the current environment, we are neutral and waiting.

The most recent Commitment of Traders (COT) report shows speculators cutting their net long position by a huge 49,000 contracts and the commercials cutting their net shorts just as dramatically. Gold’s falling price and declining open interest suggests selling pressure is subsiding. Strong dollar and positive economic data from US is keeping a lid on gold prices. Tomorrow if US Advance GDP comes positive, then we may again see gold crawling back towards $1,270 level.

Yesterday, crude oil prices saw some selling pressure after the Energy Information Administration (EIA) reported a build in crude oil inventories for the week to April 19. Saudi Arabia has stated that they are now willing to increase their production but may respond to customer needs if they want more oil. The technical picture shows crude is overbought, but open interest has begun to rise. This shows that buying pressure is still there and we may see shallow corrections only. Far contract of 2020 June NYMEX has come into backwardation against active month June 2019 NYMEX contract. Backwardation occurs when short-term supply concerns lift the price of a commodity for nearby delivery over the price for deferred delivery, so this is again bullish for crude oil prices.

BUY Copper

TARGET: Rs 462 

STOP LOSS: Rs 440

Trend of copper on a daily scale is looking positive at the higher top and higher bottom formation. It is trading in a range of Rs 440 - Rs 460. At present, it has taken support at its lower range of Rs 440 and now has started ascending to test its upper range of Rs 460 levels. Copper is trading above its short term moving an average of 13-EMA (exponential moving average) which again confirms the bullish trend. There is no divergence in RSI_14 oscillator so we would recommend long at the current level for an expected move till Rs 462 and stop loss of Rs 440 on the closing basis.

BUY Aluminium 

TARGET: Rs 157 

STOP LOSS: Rs 148

Aluminium has made rounding bottom chart pattern on the daily scale and is one of the metals which has started outperforming after languish performance from January to March period. Aluminium is trading above its all important short-term moving average and clearly, RSI_14 shows there is more room for upside. Range breakout above Rs 150 has given fresh set of legs and we expect upside momentum to continue till Rs 157, so take long position with stop loss of Rs 148.

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