Is the current rally In Base Metals sustainable?

Base Metals are in sharp Bullish trend from lastone month and currently all of the base metals trading near to their multiplemonths high. Fundamentally the current rally in the base metals supported by globaleconomic growth and on the hopes of increase in demand, especially in China(the world’s largest producer and consumer of base metals) due signs ofstability in the Chinese economy. Demand from the Euro zone coupled with theweakness in the U.S. dollar also worked as the catalyst for the bullishmovement in Base metals.

The U.S. dollarindex, which measures the greenback’s strength against a trade-weighted basketof six major currencies (Euro, Japanese yen, Pound sterling, Canadian dollar,Swedish krona and Swiss franc), has fallen almost by 11 per cent at 91.55year-to-date and currently trading to more than two and half year low. Ingeneral, there is an inverse relationship between the value of the U.S. dollarand base metals prices. When the value of the U.S. dollar increases againstother major currencies, the prices of base metals tend to drop and when thevalue of the U.S. dollar decreases against other major currencies, the pricesof base metals move higher. This is a general rule, but it doesn’t hold trueevery time.

Let’s have a look at the current scenario of basemetals with the help of below mentioned summary table:-

The bestperforming base metals year-to-date is Copper with almost 15% gain followed byAluminium, Zinc, Lead and Nickel with 14.13%, 13.29%, 11.91% and 8.56% gainrespectively till 30th Aug 17.

Technically basemetals were in consolidation phase from the start of the year & have givena sharp upside movement in last one month. The current rally in base metals issupported by good volume and strong technical indication and we can expect acontinuation in it. Let’s have a look at the technical outlook for the basemetals in the short term:

Copper: Copper is leading to the rally in base metals. Technically copper issustaining near to 3 year high and in the short term (1-3 months) it can testthe levels of ₹465-475 on the upside. It’s having a major resistance level at₹485 and there are less chances of Copper to sustain above the same.

Aluminium: Aluminium is following to the Copper in best way and currentlysustaining near to 9 year high. In the short term, it can test the levels of₹142-145 on the upside.

Zinc: Zinc is trading near to 9 month high and having a resistance level at₹204.20. In short term, if it breaks the level of ₹204.20, then it can test thelevel of ₹209 on the upside.

Lead: After testing 8 month high, lead recently made a low of ₹146.90, stillwe can expect upside movement in it till the levels of ₹161 - 164 beforefalling further.

Nickel: Nickel is the slowest one in the current rally but still witnessedalmost 9% gain in last one month. Technically, we can expect bullish movementin it till the levels of ₹810-820.

As the demand for the base metals is quite strongand getting better due to global economy growth coupled with the indication ofthe upside rally on the charts, we can say that the current rally in basemetals is sustainable.