Base Metals This Week: Bearish Outlook

Base metals are expected to trade low due to the ongoing debt crisis in Europe.
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NEW YORK (TheStreet) -- We expect base metals to trade low due to the ongoing debt crisis in Europe. The rallying Dollar Index renders the currency denominated commodities dearer for overseas investors, routing their investments to safer avenues such as the dollar, gold or the Japanese yen. We anticipate metals to trade range-bound with a downside bias.

Copper

The three-month LME prices continued the downtrend last week. After climbing to a high of $7,206 per ton, the metal closed at $6923 per ton. The downtrend may continue in the upcoming week since the metal has breached the support level between 3200 to 7485. Moreover, the prices are trading below the 13, 22, 45 weekly Exponential Moving Average (EMA) implying that the selling pressure may extend into the upcoming trading sessions. The momentum indicator Relative Strength Signal (RSI) weekly has descended from 0.62 to 0.47, signaling a bearish outlook for the week.

As per Fibonacci principles, a crucial support is seen at 6601 (38.2% of 8940-2817 moves) only on breach and may sustain below the same to test 6370 then 6046 levels. However, on the higher side the resistances are at 7217 and 7600 levels. On the other hand, support levels are seen at 6708 and 6370 levels. Overall, from the above analysis we expect the market to continue the bearish trend for the week.

Nickel

The three-month LME prices plummeted last week down 4.66%. After attaining the high of $23,650 per ton, the metal closed the session at $21,555 levels. Fibonacci retracement shows crucial support at the 20506 levels (27711 to 8850 moves) and may breach and sustain below the same prices to test further lows until it reaches the 19300 levels. The momentum indicator RSI weekly has descended from 0.55 to 0.50 signaling a bearish outlook for the week. Furthermore, the market has breached a downward break out of the "Bearish triangular pattern" indicating a bearish outlook for this week.

However, the volume is not confirming the breakout indicating that the metal may correct further, before resuming the downtrend. On the lower side, support is seen initially at 21035, and then at 19890 levels. On the other hand, the resistances are at 23000, and then at 24340 levels. Overall, from the above analysis, the market may trade lower, and recommend selling for the week.

More on Metals

Three Stock Picks: Base Metals

During the week, important data releases such as empire manufacturing, treasury, international capital inflows, housing starts, building permits, CPI, leading indicators, initial jobless claims, and continuing claims will define the U.S. economic outlook and, hence, the price volatility of base metals.

Recap of Last Week

In the prior week, metal prices fluctuated between gains and losses as the market was trying to judge the impact of increased inflation in China, the impending prospect of a further tightening of monetary policy, alongside the existing concerns of European economic growth.

Industrial production in China expanded 17.8% from a year earlier, down from 18.1% in March and 18.5% expected, and the new yuan loans for April increased to Yuan774 billon as compared to Yuan511 billion. A growing inflation, bank lending exceeded estimates, and the record jump in property prices, pressured the government to raise interest rates, allowing the currency to appreciate.

Eurozone ministers agreed to a nearly $1 trillion aid package to tackle the debt crisis from spreading to other member states. The governments of U.K. and Spain announced plans to cut the swelling fiscal deficit. Later on, Portugal imposed temporary taxes and cut the wages of top government officials to help narrow its budget deficit

As per the Beijing-based customs office, the imports of copper and products into China, the world's biggest consumer, were 436,345 tons in April -- down 4.4% from the March volumes of 456,240 tons, and 9% higher than the year-earlier 399,830 tons.

Last week, among the major copper producers

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

and

Southern Copper

(SCCO) - Get Report

gained 3.1% and 3.24%, respectively, whereas

Teck Resources

(TCK)

declined 2.1%.

All major aluminum producers

Alcoa

(AA) - Get Report

,

Kaiser Aluminum

(KALU) - Get Report

,

Alumina

(AWC)

and

Aluminum Corp

(ACH) - Get Report

gained last week.