Weekly Metals Wrap 2019-01-11
Continues USD Weakness Keeps Metals Supported
The yellow metal posted a third consecutive winning week as softness in the US Dollar kept price supported. USD has been left reeling in the wake of last week’s comments by Fed chairman Powell where Powell said the Fed will be remaining “patient” when it comes to further rate hikes, confirming suspicions that the Fed is going to be on pause for a while now. USD came under further pressure this week as Powell reaffirmed this message at the Economic Club of Washington D.C on Thursday saying:
“We’re in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we’re waiting and watching…You should anticipate that we’re going to be patient and watching, and waiting and seeing.”
With the Fed having downgraded its dot plot forecast in December, now projecting just two rate hikes over the year, down from three prior, USD has come under heavy pressure as investors can see the Fed’s tightening program is not likely to resume in the near term.
The recovery in gold has now seen price making a move equal to that of the last move into the highs of 2018 before we saw the protracted sell-off last year. For now, price is stalled at this level, though still above the rising trend line. Above here, focus will be on a retest of the key 1366.80 – 1375.87 level which has been the high over the last four years.
Silver prices were slightly lower this week, despite higher prices in both gold and equity markets as the US Dollar tumbled further. The move is likely due to profit taking and in the medium term, continued USD weakness should keep silver underpinned.
After stagnating for months near the main support of 1396, silver prices have since exploded higher and broken back above the key 15.1800 – 15.5700 level resistance, confirming a bullish shift in momentum. Prices are now fast approaching the 16.2267 region where we have confluence between a raft of prior swing lows and the long-term bearish trend line from 2016 highs.
After trading down to its lowest level since mid-2017 last weak, the red metal posted a small recovery this week as a softer US Dollar alongside optimism around US/China trade talks provided support. US and Chinese officials met in Beijing this week for a second round of talks aimed at progressing the two largest economies along the path to delivering a trade deal.
The discussions come around 6 weeks after Trump and Xi Jinping held talks on the side of the G20 summit in Argentina where Trump agreed to halt tariff increases on Chinese goods which currently stand at 10%.
Copper is currently caught between two conflicting technical structures. Firstly, the large sloping head and shoulders pattern suggests further downside to come. However, after piercing below the neckline and the 2.582 2018 low, copper quickly reversed higher to post a large bullish pin bar at the double bottom, suggesting the risk of a further topside run.
So, for now, the market is in wait and see mode. The next two support levels to watch are the 2.467 level and 2.292 level while to the topside the 2.852 level is the key resistance to watch.
Iron ore prices traded lower this week as the market speculated on the likelihood of further temporary steel production caps in Northern China. The speculation comes on the back of a report from the Chinese Ministry of Ecology and Environment which noted the heightened risk of significant smog in Northern China until January 14.
If further production cuts are announced, this will limit demand for raw materials. Iron has also been weighed down by a steady increase in Chinese portside iron inventories, which rose to their highest levels last week since mid-November.
After trading all the way back up to test above the $74 level, iron ore prices have since turned slightly lower. However, focus remains on further upside for now with the late 2018 $77 level high as the key resistance to watch.