Currency market to exert pressure on prices

Last week, market-wide turnover on the MCX rose 25% and open interest 2% as traders participated in the weekly volatility, particularly in the base metals segment.

The MCX turnover gainers were aluminium, cardamom, copper, crude oil, crude palm oil, gold, lead, mentha oil, nickel, potato, silver and sugar M Kol.

The open interest gainers were aluminium, cardamom, crude oil, lead, natural gas, potato, silver and sugar M Kol. The US non-strategic petroleum reserves were higher by 4.2 million barrels at 338.9 million barrels. This week will see the currency factor exert a sizable influence on commodity prices even as the international prices are showing a steady-to-firm trend in the near term.

Agri commodities
Mentha oil has attempted rally to a new high, but eased off by the end of the week as profit sales proved overwhelming for the bulls. That the turnover rallied but the price failed to do so, while the open interest eased off, indicates bull unwinding at higher levels. Avoid any fresh longs; should the price sustain below Rs1,500, surrender existing longs, if any. Market internals indicate a 24% increase in turnover and a 7% decrease in open interest.

Potato has rallied to its highest after being re-listed in October 2011, that too amidst higher turnover and open interest.

These are indicators of strength in the undertone as the bulls remain in charge. Hold longs for now. Market internals indicate a 20% increase in turnover and a 13% increase in open interest.

Sugar M Kol has rallied along expected lines as advocated last week. The price has rallied off a channel bottom support and existing longs may be held as the bulls remain in charge as the higher turnover and open interest indicate. Market internals indicate an 81% increase in turnover and a 48% increase in open interest.

Metals
Aluminium is in a reactionary phase where bulls are booking profits but the overall optimism remains intact. The Rs112 level advocated as a hurdle that must be overcome, remains inviolate on the upside and fresh momentum longs are suggested only above this threshold. Staying below the Rs107 mark, especially on a closing basis, is likely to be bad news for the bulls. Market internals indicate a 112% increase in turnover and an 11% increase in open interest.

Copper has seen a bout of profit-taking as the weekly low was the lowest in three weeks due to profit sales by short-term bulls. The closing remains above a bearish channel and a sustained close above the Rs427 level will be a prerequisite for a fresh upthrust.

Market internals indicate a 41% increase in turnover and a 21% decrease in open interest.

Gold attempted a rally as the intra-week high tested the six-week highs but failed to hold those levels. While profit sales were minor, the weekly candle chart indicates a hanging man formation with near-term cautious outlook. A sustained trade above the `28,250 levels with higher volumes and open interest expansion, will turn the tide in favour of the bulls. Market internals indicate a 37% increase in turnover and a 14% decrease in open interest.

Nickel has made an inside pattern on the weekly bar charts as the participants seemed to pause for breath after an above-average performance during the last two months. The counter remains in the buy-on-dips mode, especially near the Rs1,000 level where fresh longs may be attempted in small lots. Market internals indicate a 16% increase in turnover and a 47% decrease in open interest.

Silver shows an abortive upthrust attempt, similar to gold and the bulls have been on the back foot since the last two sessions last week. Unless a forceful break-out past the Rs58,500 level is seen, fresh bullishness may not be sustainable. Existing longs, if any, may be held for now. Market internals indicate a 20% increase in turnover and a 1% increase in open interest.

Zinc has indicated a consolidation phase as the weekly chart shows an inside formation and the fall in open interest and turnover are indicating a waning of trader interest. Stay off fresh longs for now. Market internals indicate a 1% decrease in turnover and a 28% decrease in open interest.

Energy
Crude oil logged the fourth consecutive decline on a week-on-week basis as the US non-strategic reserves rose by 4.2 million barrels. The price is now constrained by a bearish channel, and unless the bulls manage to keep the counter above the `5,000 mark sustainably, fresh advances should be ruled out. Avoid bargain-buying. Market internals indicate a 24% increase in turnover and a 23% increase in open interest.

Natural gas has fallen in tandem with crude oil prices as the weekly candle charts indicate a bearish piercing pattern, which has bearish indications for the absolute near term. Unless the bulls manage to keep the price closing above the Rs140 level, avoid fresh longs.

Market internals indicate a 13% decrease in turnover and a 44% increase in open interest.

The columnist is the author
of  A Trader’s Guide to Indian Commodity Markets and invites feedback at vijay@BSPLindia.com or
(0) 9323720291.

Fair disclosure - the analyst has no exposure to any commodities recommended above