Base metals posted a strong performance on the LME on Monday as a weaker dollar provided support. Copper prices made sharp gains, closing 3.5% higher as technical buying supported prices. A sharp rise in copper provided direction to other base metals. Zinc hit its highest since May 2008, while lead jumped over 3.5 percent as well, nickel three percent and aluminum two percent.
Financial markets witnessed a sharp rise in risk appetite and that led to strong buying in riskier investment assets like commodities. A top official from China indicated that the country could certainly surpass its 2009 target of 8% growth rate. This factor too added to the upside in base metal prices as China is the top consumer.
On the macroeconomic front, The Dollar Index closed at the lowest level in more than a year as a rise in risk appetite led to lower demand for the dollar. The Dow Jones rose 0.96% and the Nasdaq 0.91%, markets in Europe jumped more than 1.50%. The increase in risk appetite sent the Dollar Index to the lowest level since early August of 2008.
The dollar faced pressure on the downside as the Federal Reserve signaled that record low borrowing costs would remain for some time in the near future. This factor coupled with earnings optimism further encourages investors to but riskier investment assets and shun the dollar.
Overall our view for base metals this week remains bullish as demand from developing markets of Asia and South America props up prices, outweighing declining demand from the West. A weaker dollar could additionally provide upside support to prices.
On the macroeconomic front, the US is expected to announce a host of economic data today. If data comes on the positive side then risk appetite could boost and lead to a weaker dollar further.
Copper
Copper prices are sideways with immediate support for MCX November contract seen at Rs.294.10. Further below, crucial support is seen at 290 levels.
Whereas resistance is seen at Rs.305 levels & further upwards at Rs. 308.95 levels.
Zinc
Zinc prices are sideways with immediate support seen at Rs.94.25 levels for MCX October contract whereas crucial support is seen at Rs.91.90 level. Short-term resistance is seen at Rs.98.00 whereas major resistance is seen at Rs 99.40 levels.
