US Dollar (DXY) is again testing levels of 98. The FOMC minutes released recently didn’t provide the volatility needed to free DXY from its current range.
Indian rupee, meanwhile, opened strong as NDA was on track to resume power for the second time, but failed to sustain near its support zone of 69.40. That level has been tested twice and rupee has bounced from that level.
On the upside, we expect rupee to test levels of 70 and expect trade in a range of 69.40-70 in the coming sessions.
Gold, on the other hand, is in trouble. After China’s retaliation, gold jumped from $1272 per ounce to $1300 but failed to sustain above $1300. Concerns between US and Iran also failed to lift gold prices. There are two factors are keeping gold rally in check. Firstly, it is strong US dollar and the second is lack of participation by silver. Whenever silver fails to participate after gold’s rally, the rally is short-lived. This phenomenon is playing out right now.
Gold speculators have added bullish positions when the yellow metal breached $1300. If gold breaks $1267, we may see long positions getting unwound. On the downside, if it fails to get back over $1,280 in the next day or two, there is a high probability of another big push down. The strong hands are the bears and until gold can close and hold $1,300, rallies will continue to fail, and lower it go. That said, looking at oversold price action, we expect gold to stage a minor bounce back from where sellers again will get active.
Oil is being pulled in both directions. Oil prices have surged over 30 per cent this year, and there is evidence that the cuts have succeeded in tightening the market. But there are two elephants in the room - supply outages from Middle East, Venezuela/Iran; and the potential for an economic downturn because of an ongoing trade war.
Crude oil is witnessing pullback after surprise buildup in US inventory yesterday. However, fundamentals still point to positive price action. OPEC is considering a few options to increase production in the second half of 2019 and the group will be much more hesitant to do so over fears of a rerun of 2018 when prices crashed. Backwardation in the six-month Brent crude futures has surged to the highest level in over four years at $3.31 compared to $3 in 2018 peak again indicating of tight crude supply.
Buy Gold: TGT 31650 Stoploss 31100
Gold is in oversold territory in short-term, as it has crashed from Rs 32,538 to Rs 31,300 in six trading sessions. We expect a technical bounce back from current zone. Also, the yellow metal has made double-bottom at Rs 31,240 levels, which might give some respite from selling pressure. We do not expect major pullback but would not recommend going short at this stage looking at risk-reward ratio. We recommend buying at current price with target of Rs 31,650 and stoploss of 31,100.
Sell Nickel below 825: TGT 810 Stoploss 838
The recent swing low of Nickel is at Rs 825.60 and is currently trading around Rs 832. Nickel has witnessed several minor bounce back from levels of 828-826, where there is strong support for the metal. However, the primary trend is still weak and we would advise traders to short below Rs 825 - below its support zone for expected down move till Rs 810 and keep a stoploss of Rs 838 on a closing basis.
Bhavik Patel is a Senior Technical Analyst (Commodities), Tradebulls Securities
Disclaimer: He may / may not have positions in the commodities mentioned above