Commodity outlook and trading ideas by Bhavik Patel - Sr. Technical Analyst (Commodities), Tradebulls:The dollar index is evolving in a bull channel and inside Friday’s range just above the 95.00 marks. It is trading above the 50, 100 and 200-day simple moving averages suggesting bullish momentum. Bulls could not take over the levels of 95.70 and yesterday DXY quickly dropped to the levels of 95. However, the trend is expected to remain positive on worries of a prolonged China-US trade war and after the United States and Canada ended contentious trade negotiations without a deal. Indian Rupee is witnessing free fall since it broke 70.50 in Future. Every day it is making new low and we expect INR to test levels of 72.40 near term before we may see some pullback. So investors are advised to take the approach of buy on dips unless 71.80 are not breached.
Gold once again has taken back seat as trade war concerns have come to the front. DXY has been strengthening and so gold prices have retraced back around $1200. The price of gold finished August with its fifth consecutive monthly decline and its biggest losing streak in over five years. Rebound in the U.S. dollar threatens to undo gold's recent progress. US 10 year bond yield has also taken support at 2.80 and has now increased to 2.864 so that is also putting added pressure on Gold. However in MCX, as long as 30000 is not breached we expect Gold to test levels of 30500. Silver meanwhile continues to struggle. August has been a very rough month for silver. The Gold/Silver ratio has reached 1:80 indicating high underperformance from silver against gold. Open interest is also increasing indicating investors are shunning silver and creating short positions. We expect short covering in silver if it manages to break $15 in COMEX.
Crude Oil has hit $79 and retraced somewhat back to $77. The pullback is technical in nature as crude traded positive for 11 sessions out of last 13 sessions. Crude oil still looks positive as the spread between WTI and Brent has increased to 8 from 6 indicating political risks in the Middle East. Iran sanctions also weigh on crude oil prices as hostilities have increased between Iran and Saudi Arabia with both countries playing proxy war in Yemen. The blockade of Qatar by the Saudis and other flashpoints throughout the Middle East could potentially impact oil production, refining, or logistical routes in the region.
Target: Rs 180
Stop loss: Rs 172
Zinc lately has started outperforming Lead and we expect the momentum to continue for a couple of more trading session. It has closed above its short-term moving average of 13 and 20. RSI_14 has started curving upwards and is near 50. Zinc had made harami candlestick pattern after fall which indicates that sellers have exhausted and buying is slowly emerging. We recommend long position with a target of 180 and stop loss of 172.
Buy Natural Gas
Target: Rs 208
Stop loss: Rs 197
There continue to be bullish and bearish factors at play in the energy commodity. Inventories are at the lowest level in years, while production is at a record high. The correction from 208 to 201 was on account of China saying that they are considering slapping a 25 percent tariff on U.S. exports of LNG to the Asian nation. Natural Gas has made hammer after correction indicating bullish candlestick pattern. It is trading above its 50 day moving average so the medium term, the trend is bullish. Failure to break below its previous swing low of 198 indicates that the bull trend still exist and we recommend long position with a target of 208 and stop loss of 197.
Disclaimer: The analyst may have positions in any or all the commodities mentioned above.