Strong Dollar squeezes Commodities :: Edelweiss

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Commodity Weekly Perspective

• Precious metals surprisingly notched handsome gains, with gold prices moving beyond $1200/oz, while silver regaining $16/oz levels. The pack has managed to withstand the buoyancy in the US dollar. In this respect, the greenback has maintained its ascent against other major currencies, with US dollar index advancing above 92 levels. Euro is under immense pressure, with values with values well around ten year low against the greenback. At the current juncture, gold prices are maintaining gains as political uncertainty in respect with Greece elections have underpinned the safe haven appetite.
• There is a growing perception that Greeks may elect the opposition party, which in the process may lead the country to exit the European Union. Although the opposition party is not clearly in favour of leaving the euro, it wants to redefine the austerity measures associated with its bailout.
• On outlook, the yellow metal may hold ground as minutes of the FOMC meeting during December conveyed the Fed will be patient with the monetary policy and will hike interest rates during the end of this year. The central bank is also concerned with low inflation, which can aggravate further considering the recent slump in energy prices.
• After registering a weekly high of Rs27450/10gms, MCX gold failed to sustain around this levels. Prices lost ground in the ensuing trading sessions. Till prices sustain above Rs 26500, prices would continue to rally. Silver charts are replicating the formation, evident in gold prices. Prices have failed to sustain above the crucial level Rs38150/kg. Till prices sustain above Rs 36500, prices would continue to rally
• Trajectory in Oil prices simply resemble a falling knife market, wherein an endeavor to figure out a bottom seems to be dangerous. The markets are deprived of any support from OPEC. The cartel is disinclined to cut output in spite of a free fall in oil prices. In fact, vibes from Saudi Arabia convey that the country is determined to confront with the situation created by lower oil prices, which is not unprecedented. MCX Crude oil prices have been witnessing massive selling pressure, however prices are now holding around the 161.8% projection level of Rs3030/bbl.
• We may see meaningful recovery in prices, provided that it sustains above Rs3200/bbl on daily closing basis. In international markets, $46.80/bbl is enacting as crucial support; weekly closing above $50/bbl can ensure healthy rebound.
• The pack has been the victim of a fierce selloff in the energy markets. Market participants in the non-ferrous markets are now dwelling on the perception that the cost of production for most of the metals will decline and in the process will discourage producers of metals like Aluminum from shutting down the excess capacity.
• Base metals, barring Nickel struggled as Chinese manufacturing activity continues to decelerate, with the official manufacturing PMI reading in December coming in at a year low of 50.1, down from November’s 50.3. The broader trend in the pack remains fragile as there are no signs of improvement in broader economic activity. MCX Copper is struggling below the crucial support Rs391/kg. Weekly closing below this level can aggravate the weakness. On the downside, prices may tumble towards Rs378/kg. Then we can see a broad-based recovery to Rs 400 again.

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https://www.edelweiss.in/research/Strong-Dollar-squeezes-Commodities/10005417.html