Base metals complex have been witnessing turbulent movements over the past few days amidst a stream of mixed US data and fluctuating currencies. As we head into the Chinese New Year, with financial market risk aversion rising, base metals might not be able to sustain a rally higher. Overall, market sentiment has become unsettled over Chinese lending curbs and the pace of the economic recovery. Chinese banks have implemented the 0.5-percent increase in their reserve ratio that was ordered last week by the country’s central bank to curb excessive lending. But there were improved growth forecasts from the International Monetary Fund. The IMF upgraded its 2010 forecast for global growth to 3.9 percent from an October estimate of 3.1 percent and said it expects the world economy to grow by 4.3 percent in 2011. It revised Chinese growth up to 10 percent this year and 9.7 percent next year. The IMF expects prices for commodities to continue to rise as global economies recover. On the data side, the US central board confidence index came in at 55.9, better than the expected 53.6 and the highest since September 2008. On the currency front, the Dollar Index gained marginally as investors continue to flock to the low-yielding dollar as risk aversion set the tone in the financial markets. Selling pressure in equities continued throughout the week. The Euro has major support around 1.4000 levels because any sustained break below this level would likely lead to sharp rally in the US Dollar, and an imminent fall in major asset classes. The base metals complex will continue to take cues from the movement in the dollar, economic data and risk sentiment in the financial markets. Though Chinese data has come on the positive side concerns over lower lending in the world’s biggest base metal consumer may lead to downside pressure. If the dollar continues to retain strength on the back of risk aversion then base metal prices could witness downside pressure. The major highlight of this week is the two-day FOMC meeting and the statement will be announced on 27th January. We do not expect a change in the monetary or credit policy in this meeting but the focus of the meeting will revolve around the exit strategy and whether policymakers will discuss further asset purchases to support the mortgage beyond the end of March decline. Other important data releases from the US in the week include new home sales, durable goods orders, unemployment claims, Chicago PMI. But by the end of the week markets could get choppy ahead of the release of the advance report on fourth-quarter GDP on Friday. The GDP is expected to advance 4.5% in the fourth-quarter against 2.2% in the last quarter. If the data comes in as per expectations then risk appetite in the financial markets could rise and prices of base metals could rise on expectations of a rise in demand from the world’s largest economy. Copper Copper prices are trading sideways with immediate support for MCX February contract seen at Rs.335.45. Further below, crucial support is seen at 330 levels. Whereas resistance is seen at Rs.346.50 levels & further upwards at Rs. 351.00 levels. Zinc Zinc prices are trading down with immediate support seen at Rs.104.80 levels for MCX January contract whereas crucial support is seen at Rs.102.35 level. Short-term resistance is seen at Rs.107.90 whereas major resistance is seen at Rs 109.20 levels.

Source