NICKEL TODAY: Aiming at fresh June price high

 
Very short term (1M):  Flat 
 Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Up
Resistances:
R1 13,115 Jun high
R2 13,345 Feb 2020 high
R3 14,350 2020 high
Support:
S1 12,716 20 DMA
S2 12,352 50 DMA
S3 10,525 Jan 2019 low
Stochastic:
Bullish
Legend:

BB - Bollinger band
DMA - daily moving average
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
  • LME nickel price is trading back and forth in the ascending wedge pattern.
  • Momentum for further upside is capped (see chart) by the upper channel but dips are being bought near the rising 20 DMA.
  • The daily RSI and stochastic lines are fairly flat here and offer little directional bias.
  • Given its current technical configuration, the ascending wedge is often a continuous pattern of the prevailing trend; more often than not, it evolves into another run lower.
  • But its resilient price action and a potential mini bull flag formation suggest that more short-term upside remains possible.
Macro drivers
Based on the price action in the early Asian trading session on Friday June 19, the LME base metals are holding up well near their recent highs despite the growing number of new Covid-19 cases. Although market sentiment appears risk-friendly, there are fresh concerns over the renewed tensions between the United States and China following President Donald Trump's tweets on the option to decouple its economy from China.  

The macro environment, despite poor data, geopolitical tensions and Covid-19 fears, is conducive to firmer commodity prices due to the massive liquidity effect from the Federal Reserve. Assets in money-market funds (i.e. the pile of cash held by investors) are at record highs. This suggests that risk assets may continue to push higher, which a positive environment for all the base metals.

LME nickel's speculative funds positioning turned bullish in the week to June 12. Gross longs added 942 lots while gross shorts cut their exposure via 320 lots. Its NSFP contracted to 1,447 lots; improved speculative sentiment in the coming weeks could swing it to a a net long fund position again.

But while speculative funds positioning has turned less bearish toward nickel, physical demand remains tepid, raising questions about the sustainability of LME nickel's price. Fastmarkets' weekly global nickel premium assessments were unchanged in the week to June 16. In China, no import activity was reported due to a poor arbitrage while demand in Europe remains weak despite restarts.


Conclusion
The mini bull flag formation within the ascending wedge formation suggests that there may be more upside momentum in LME nickel. While we envisage a new June high in the coming days, we suspect the upside will be limited by the upper channel of the larger ascending wedge formation.

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

June 19, 2020

10:03 GMT

London

Keywords