Stronger rupee could mute upthrust in commodity prices

The markets witnessed a higher turnover last week as traders displayed higher appetite for bullion upon smelling an opportunity for a rally. The week-on-week (w-o-w) market-wide turnover on the MCX rose by 15%. The market-wide open interest fell by 15%. The MCX turnover gainers during the week were cardamom, copper, cotton, crude oil, crude palm oil, gold, lead, mentha oil, nickel, potato and silver. The open interest gainers were cardamom, crude oil, gold and potato. The US non-strategic petroleum reserves were higher by 3.8 million barrels at 364.5 million barrels. But for the expiry of the August series, the market-wide open interest would have been higher. The rupee has been playing a significant role in the price discovery process of hard assets; any further strength in the Indian currency could mute the upthrust in commodity prices.

Agri commodities
Mentha oil is witnessing a buy-on-dips pattern as the approaching winter will see a cyclical demand spurt lifting futures’ prices in the coming weeks. A confirmatory rally past Rs1,400, and a sustained trade above this threshold thereafter, will be required to confirm a fresh buy. Market internals indicate a 1% increase in turnover and a 3% decrease in open interest.

Potato has fallen for five consecutive weeks and that raises the probability of a pullback rally, especially if the price stays above Rs1,125 on a closing basis. Avoid fresh longs for now. Market internals indicate a 26% increase in turnover and a 13% increase in open interest.

Metals
Aluminium has managed to stay above the Rs102 support and gained negligible ground on a w-o-w  basis. The fall in turnover has been partly due to the impending expiry of the August series and the range-bound trade. Should the price head towards the Rs106 threshold, selling pressure may accelerate. Avoid chasing the price higher. Market internals indicate a 20% decrease in turnover and a 37% decrease in open interest.

Copper has seen a bullish doji on the weekly charts and the lower open interest is due to the expiry of the August series. The strengthening rupee capped prices and the bulls will have to overcome Rs434 to push prices higher. On the other hand, if the price falls below Rs410, it would trigger an unwinding of longs. Market internals indicate a 7% increase in turnover and a 40% decrease in open interest.

Gold is now in the blue sky territory as the price is at its highest on the MCX; therefore, overhead supply is likely to be minimal. The Rs30,600 level will act as a support in case of declines. The bulls must defend this support if the short-term momentum is to remain upwards. Hold longs. Market internals indicate a 26% increase in turnover and a 2% increase in open interest.

Nickel has retraced from Rs920 exactly as advocated last week as the price, as per conventional Dow studies, had reached a congestion point. The threshold will act as a hurdle on the upsides and bulls will have to prove their intent by taking the price past this resistance forcefully, if a fresh upmove is to occur. Avoid fresh longs till then. Market internals indicate a 2% increase in turnover and a 14% decrease in open interest.

Silver has surged strongly to outperform gold last fortnight. That the volumes have expanded along with a price rise lends credibility to the upthrust. The weekly chart shows a bullish breakout of a long-term symmetrical triangle, with Rs56,000 acting as a support in the coming weeks. Hold longs for now. Market internals indicate a 21% increase in turnover and a 12% decrease in open interest.

Zinc attempted an abortive upthrust, which lacked follow-up buying support. The upsides are likely to be laboured as and when the price approaches Rs106. A fresh buy mandate will be received only above this threshold. Await a confirmatory rally before initiating a fresh buy. Market internals indicate a 26% decrease in turnover and a 13% decrease in open interest.

Energy
Crude oil has seen a marginal gain on a w-o-w basis and the rising inventory in the US played spoilsport for the bulls. If the price sustains above Rs5,400 on a closing basis, it would put the bulls back in the saddle for the near term. On the flip side, staying below Rs5,295 will see further weakness. Market internals indicate a 15% increase in turnover and a 2% increase in open interest.

Natural gas was seen to rise after a five-week decline and form an inverted hammer last week in this column. The price lived up to our expectation and rose 4% on a week-on-week basis. The possibility of a further upside remains strong as long as Rs148  holds in case of a decline. Hold existing longs for now. Market internals indicate an 8% decrease in turnover and a 15% decrease in open interest.

The columnist is the author of  A Trader’s Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com
Fair disclosure: The analyst has no exposure to any commodities
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