PALLADIUM TODAY – Stronger signals emerging

Dec 14, 2016 - 9:47 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 521- 524 Former support
R2 544 50% Fibo Jan-Apr
R3 547 DTL Sep 2014
R4 573 Dec 2015 high
R5 606 Mar 23 high
R6 618 Apr 2016 high
R7 636 200 DMA
R8 727 Oct 3 2016 high
R9 724-729 Former spike lows
R10 739 20 DMA
R11 747 High Aug 10
R12 803 High May 2015
Support:
S1 739 20 DMA
S2 724-27 Aug-Oct high/Late Nov support
S3 694 40 DMA
S4 689 100 DMA
S5 682 50% fibo 2014>2016 drop ($911-452)
S6 663 38.2% retracement Jun>Aug rally
S7 655 UTL Jan/Feb lows
S8 637 50% retracement Jun>Aug rally
S9 635 Apr 2016 high
S10 611 61.8% retracement Jun>Aug rally
S11 547 DTL Sep 2014
S12 452 2016 Low
Stochastics:Crossed higher in low ground
Legend:

MACD = Moving average convergence divergence
Fibo = Fibonacci retracement line
(H)SL = (Horizontal) support line
BB = Bollinger band
DMA = Daily moving average

Analysis

  • Palladium remains under modest pressure while prices consolidate ahead of the conclusion of the FOMC meeting today.
  • The 20 DMA at $738 per oz is acting as immediate resistance while prices are testing the $727-24 support level that had capped prices in August/October and underpinned prices late in November.
  • The metal appears to be forming a falling wedge – a break above the DTL at $720 per oz would signal renewed bullishness.
  • The stochastics look more encouraging, having crossed higher in low ground.
  • The 40 DMA has crossed above the 100 DMA and the 55 DMA is also poised to cross higher. The two stand around $688-94 per oz and should provide support.
  • Resistance above the market is seen at $780-830 per oz from October 2014-May 2015.

Macro factors

Palladium ETF holdings have stabilised after a period of heavy disinvestment into recent strength – holdings stand at 1.736 million oz, a drop of some 310,000 oz since mid-November.

By contrast, net length among Nymex speculators has risen in recent weeks to stand at 15,624 contracts in the week to December 6. Although the net long position is up 84% in the year to date, it is not elevated compared with its long-term average of about 12,500 contracts. Importantly, assuming that sentiment has turned structurally bullish on palladium, its spec positioning is likely to become overstretched before reversing. There is therefore plenty of room for further speculative buying pressure in the weeks ahead, we think.

The latest round of vehicle sales results continue to signal rising underlying PGM demand. Chinese passenger vehicle sales continue to record strong growth, rising 17% year-on-year in November, according to the latest figures from the China Association of Automobile Manufacturers. Sales totalled 21.7 million vehicles in the first eleven months of the year, up 16% on January-November 2015. Passenger vehicle sales in Europe were up 7.2% in January-October. But the latest US figures show signs of fatigue, with sales up by only 0.1% year-on-year in the first 11 months. Still, sales face headwinds in 2017, particularly in China where the tax-cut on smaller-engined vehicles is set to expire at the end of this month. European passenger-vehicles sales figures are due from the ACEA tomorrow.

Palladium’s fundamentals will continue to improve – fallout from the Volkswagen ‘Dieselgate’ scandal will lead to a shift away from diesel-powered vehicles in Europe. Carmaker Renault recently suggested diesels could disappear from most of its European car range.

The global palladium market will record a 651,000-oz deficit in 2016 compared with the 843,000-oz deficit forecast previously by Johnson Matthey. It sees total supply rising 1% to 9.03 million oz – a near-10% rise in recycling volumes will offset static mine production. Palladium demand from the autocatalyst sector is set to increase 2% to 7.8 million oz, fuelled by growth in sales of gasoline-powered cars. JM forecasts another year of substantial deficit in 2017 – demand will continue to outstrip growth in supply despite rising supply from recycling volumes.

Conclusion

Palladium has held support around $727-24 per oz in recent days and looks more constructive on the charts following a much-needed period of consolidation. Short-term direction is likely to depend on the wider reaction to today’s FOMC meeting, although we maintain our bullish outlook – improving economic signals continue to create a favourable fundamental backdrop.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.