Commodity outlook by Bhavik Patel - Sr. Technical Analyst (Commodities) at Tradebulls Securities:
The US Dollar Index (DXY) has been essentially trading in a range since mid-May. Yesterday US Dollar traded stronger after the Federal Reserve maintained status quo on rates but affirmed more increases are likely on the way. Concerns about a trade war between the U.S. and China is also keeping US Dollar index strong. RBI has increased interest rate by 25 basis points which have helped Indian rupee trading stronger against US Dollar. We expect USDINR Future to strengthen till 68.35. Any positional long position in USDINR can only be taken above 68.90 as that is proving a solid resistance for the currency.
Gold is having a terrible year, losing nearly 8 per cent in the last three months and 11 per cent from its 2018 high as the U.S. dollar has gained ground against foreign currencies, weighing on the dollar-denominated asset. Gold on the daily chart is fluctuating around $1215-$1220. We still have no sign on chart that shows that bottom has been placed. This doesn’t mean that we are expecting a sharp fall in gold but downside seems to be limited. There could be a possibility of a relief rally on the horizon but we still believe it is very much a US Dollar play. Gold needs a break lower in the dollar or stronger inflation data to try and resume a rally. This week we have US Non-farm payroll data which will again weigh in negative for precious metals. So inspite of leveraged speculators holding record shorts, Gold and Silver are in store for short-term pain.
Crude Oil has retraced from $76 to $72 on back of an increase in US inventory. Still, the price of Crude oil remains in bullish trend despite all commodities like precious metals and base metals moving lower. Any serious correction in Brent crude is only expected if it breaches $70. In July, it touched low of $71 and bounced back to $76 before now retracing back and settling near $72. The trend still is bullish and what we are seeing right now is pull back from the recent rally. We expect prices to remain volatile because of brewing issues with Iran.
Buy Lead
Target: 150
Stoploss: 143
Lead has been consolidating in range of 144-149 since 19th July. At present it is trading near the support range of 144. RSI_14 is at 34.31 on daily scale and has managed to come out of oversold region. Lead has taken multiple supports at 144 and previously too in Sept 2017, it had taken support at 143. So 144-143 is strong support for the metal and we expect relief rally from current juncture. So we recommend creating long position with expected move till 150 and stop loss at 143 on closing basis.
Sell Aluminum
Target: 136
Stoploss: 143
Aluminum prices on daily scale have been failing to break above its 200 day moving average. Since 11th July, the prices have tested the resistance of 200 day moving average 6 times, validating its significance as important resistance zone. It has also failed to scale above 20 day moving average twice in last 1 week. RSI_14 is still at 41 so there is room for downside before we can say that metal is in oversold region. Aluminum made ‘Bearish Belt Hold’ candlestick pattern yesterday which also complements the negative view and so we recommend short position with expected fall till 136 and stop loss above its 200 day moving average at 143.
Disclaimer: The analyst may have positions in any or all the stocks mentioned above.