Commodity outlook by Tradebulls Securities: Buy lead, sell natural gas

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

Indian Rupee is sustaining above 70 despite DXY falling from 96.50 to sub 95.20. The sell off this week was exacerbated by headlines that President Donald Trump was complaining to donors that new Fed Chair Jerome Powell was raising interest rates too aggressively. Yesterday US Federal Reserve’s meeting minutes showed that they are on a path to raise interest rate in September. This although positive for dollar, market shrugged off and we saw DXY tumbling. Weakness in INR persist inspite of weak DXY as crude oil prices once again has raised its head. Brent Crude is trading near $74.50. We expect weakness in INR to persist and may re-test levels of 70.30 next week. Technically speaking, Dollar index has support at 95-94.80 and we expect it to take support around that level. If we look at retracement taken from low of 68.50 and recent high of 70.49, 50% retracement comes at 69.50. So that is support for now. I believe any correction can only come if USDINR Fut moves below 69.50. There is conflux of support around 69.20-69 so it would be difficult for currency to move below 69 right now.

Gold started this week (Monday) in COMEX to mark the best single-session gain of this month so far, as prices bounced back from their worst weekly decline in more than a year. Gold was overdue for a relief rally. We still believe this is relief rally although bottom for now has been placed. Gold will get additional strength if it manages to break above $1200. Yesterday it failed to sustain above $1200 and retraced back to $1190 after expectation of higher interest rate. We may see short unwinding if Gold manages to break $1205 as there are massive short position in gold. In fact, gold speculators net position go bearish first time since 2002. Physical buying is also seen near the levels of $1170. Gold has been attracting investors from China. There are limitations in buying properties and equity markets have underperformed so they are buying gold as prices are low and to hedge against depreciating Yuan.

Crude Oil prices jumped yesterday after a sharper than expected decline in US inventory. Downside correction seems to be over in crude as technical seasonal outlook and fundamentals suggest more upside in prices. The headwind for crude oil prices is a slowdown in emerging economies.  Brent Crude has conflux of resistance near $76 so it would be difficult to cross that level unless any significant supply of oil disruption happens.

Buy Lead

Target: Rs 145

Stop loss: Rs 137

Lead had bounced from oversold territory and made bullish engulfing candlestick pattern on a daily scale. The oscillator RSI_14 also shows recovery from an oversold region and is now at 36 after dipping to 27 last week. The primary trend still is negative as it is trading below all short term moving an average of 13, 20 and 50. However, Lead looks poised for a bounce as it is making higher low since past 3 trading session. We would recommend long position with expected upmove till 145 and stop loss of last week’s low 137 on a closing basis.

Sell Natural Gas

Target: Rs 200

Stop loss: Rs 210

Natural Gas is attracting sellers near $3 in COMEX. Recently too it had become top heavy near $2.978 and has retraced back to $2.96. In MCX, Rs. 210 is proving strong resistance for Natural Gas. Since the start of the year, thrice it has scaled till 209 and retraced back. Currently at 208.8, on a daily scale, it made shooting star candlestick format which indicates exhaustion at the top. Looking at the historical past of strong resistance near 210, we expect Natural Gas to retrace till 200. RSI_14 also last week was in the overbought zone at 73 and has retraced back to 63. We expect the pullback to continue and thus we recommend short position with expected down move till 200 and stop loss of 210 closing basis.

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