Base metals were again hit by waves of investment-based liquidation and selling on the LME last week, aggravated by the dollar springing to its best over past 6 months. Copper, lead and zinc fell to fresh multi-month lows. Market leader copper plunged precipitously, hitting its weakest since mid-November near $6,700, underlining how the complex' brief reaction bounce was swiftly reversed by dollar strength. As per the economic data releases last week, the University of Michigan’s Survey of Consumers Sentiment for January was 74.4, a two-year high, which was above expectations of a 73.1 reading. And the Chicago PMI came in at 61.5 - a four year high for this index and beating the forecast for 57.3. This came on the heels of much better-than-forecast preliminary US GDP data for the fourth quarter. The US economy grew at a rate of 5.7 percent in the last three months of 2009 compared with growth forecasts of 4.5 percent. Inspite of the positive numbers, base metals witnessed a sharp fall as funds had built aggressive short positions on the back of trouble brewing in Euro-zone & tightening Chinese lending norms. Nickel was the sole exception to the downward tide, ending up $150 at $18,500, having hit one-week highs today although stocks jumped 1,290 tonnes to a new record high of 164,808 tonnes. Nickel has proved surprisingly resilient. There are a few fundamental reasons for this, notably a possible strike at Xstrata's Sudbury, Canada, operations. Base metal prices could come under further pressure if the dollar remains strong which is a key factor leading to a collapse in base metals. Base metals have also been hit by a significant deterioration in sentiment of broader markets, which has convinced investors to cut risk and take profit, and risky assets such as commodities have suffered. Global equities markets have been hit hard over the past week which led to profit booking as well as fresh shorts being built across the base metals pack. A rallying dollar & lingering concerns over a drop in Chinese demand overshadowed good US GDP growth in the fourth quarter. There is a growing sense of agitation and worry in the market with a chance Greece defaulting on its debts, which is hurting the euro and reducing investor risk appetite. China is on a mission to cut down on bank lending & that is definitely going to pull down demand there and it’s going to create some liquidity problems. We expect base metals pack to trade with a negative bias as the short-term trend remains down. Further, with Chinese New year approaching (from 14th Feb), Chinese commodities traders would maintain a low profile, preferring to sit on cash, which could further pressurize prices. Amongst a host of economic data releases this evening, US “ISM Manufacturing” is to be keenly watched. Copper Copper prices are down with immediate support for MCX February contract seen at Rs.307. Further below, crucial support is seen at 303 levels. Whereas resistance is seen at Rs.313.55 levels & further upwards at Rs. 318.15 levels. Zinc Zinc prices are also trading down with immediate support seen at Rs.95.50 levels for MCX February contract whereas crucial support is seen at Rs.94 level. Short-term resistance is seen at Rs.98.50 whereas major resistance is seen at Rs 100 levels.

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