LEAD TODAY: Price trading sideways in dull market

 
Very short term (1M):   Flat
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Flat
Resistances:
R1 1,662 50 DMA
R2 1,881 Mar 2020 high
R3 2,038 Jan 2020 high
R4 2,265 Oct 2019 high
Support:
S1 1,644 20 DMA
S2 1,570 Mar 2020 low
S3 1,551.50 Nov 2016 low
Stochastics:
Mixed
Legend:
BB – Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
U/DTL – up/downtrend line
H&S – head-and-shoulder pattern
RSI – relative strength index


Analysis  
  • Following from the sell-off on Wednesday May 27, the three-month LME lead price was little changed this morning.
  • The metal is clinging onto the 20 DMA for technical support. A negative close below it could trigger more short-term selling pressure.
  • With the price working its way through a symmetrical wedge-like pattern, it seems likely to trade sideways.
  • Only a clean break on either the UTL or DTL will set the next directional bias.
Macro drivers

Since its March 2020 low at $1,570 per tonne, LME lead has spent the last two trading months consolidating in what appears to be a symmetrical wedge-like pattern. The short-term rebound proved fleeting; the lack of buying means it is struggling near the lows. Still, it has made great strides to trade out of the DTL off the October 2019 high (see chart) and appears to be base-building above the psychologically important level of $1,600 per tonne. To unlock more gains, led will need to trade out of the wedge-like pattern and break above the April high.

But this will prove fairly challenging given the current macro-economic backdrop and LME lead’s very own fundamentals that are not price-supportive. Rising unemployment levels, the loss of income and the prospect of a global economic downturn (with the rising prospect of trade and political disputes between the United States and China) are all likely to persist in 2020. The economic damage and uncertainty is set to change consumer behavior in the post-Covid-19 era.

Although supply disruptions have been price supportive in the short term, the automotive industry continues to face a sharp decline in demand. IHSmarket now forecasts global light vehicle sales to plummet by 22% to 70.3 million units in 2020.

The automotive sector outside China remains challenging. Demand destruction in auto sales, due to the global health crisis, is emerging. Japan’s largest carmaker, Toyota, recently said it expects to sell 7 million units this year, down from last year's 9 million units, for example. With fewer cars on the road, demand for lead-acid batteries will decline too. BloombergNEF (BNEF) now forecasts registrations for combustion engine cars to drop by 23% in 2020 because the global lockdown has disrupted sales and undermined consumer confidence.

Conclusion
Despite the positive break above the DTL  off the October 2019 high DTL, interest in pushing LME lead higher remains tepid. A false start to the upside pushed the price lower again although the dips remain bought. With no clear conviction from either buyers and sellers, we envisage more sideways trading in the coming days..


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

Andy Farida

andy.farida@fastmarkets.com

Published

Andy Farida

May 28, 2020

07:48 GMT

London

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