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Palladium All Set for Rebound

Palladium All Set for Rebound

2014-02-03 16:18:00
Research, Research Team

Talking Points:

  • Palladium slid down 4.3% last week due to China’s manufacturing slowdow
  • Rebound from current level is very likely; $690 is next major support 
  • Around 1 million to 1.277 million ounce deficit is likely in 2014 as supply shrinks

Palladium futures for March delivery slid down 0.5% to $703 an ounce on Friday hence dragging weekly losses to 4.3% after China’s manufacturing slowdown and uncertainty about emerging economies.

The white metal is being traded around $706 at 09:15 GMT in Asia. Immediate support can be noted near $700 which is 76.4% fib level, a break below this support may expose $690 that is the lowest since 14th December and a critical support zone due to swing low of previous wave. Daily close below $690 may push palladium into a relatively deeper bearish trend as it will print Lower Low (LL) in that case.

Palladium_all_set_for_rebound_after_finding_support_at_700_body_1.png, Palladium All Set for Rebound

On upside, resistance is seen around $721 which is very important due to a number of reasons;

  • It is 50% fib level
  • It is a confluence of 55 DMA, 100 DMA and 200 DMA
  • It is a historical resistance area for palladium

Thus, a limited correction is expected around $721. However, the final target of ongoing wave shall be nearby $745 i.e. 23.6% fib level and major resistance ahead of previous wave’s swing high.

It is pertinent that both Commodity Channel Index (CCI) and Relative Strength Index (RSI) are dipping below the oversold territory which means a bullish reversal could be in play very soon. Nevertheless, no divergence is being noted with MACD on any timeframe. China, the biggest consumer of Palladium, last year grew at the slowest pace since 1999, a report by the country’s National Bureau of Statistics (NBS) said on January 20. China’s industrial production rose 9.7% in December, slower than expected. Furthermore, manufacturing activity in the world’s second largest economy also slowed down in January, a separate report by HSBC holdings revealed on January 23rd.

Palladium is categorized as a precious metal and belongs to Platinum Group Metals (PGM). It is mainly used in industrial applications, automobiles, dental, electrical and chemical products. Russia and South Africa are the two top producers of Palladium.

Palladium suffered a deficit of around 740,000 ounces last year, according to a Johnson Matthey report. Analysts believe that the deficit is likely to carry forward in 2014 and may continue for the next couple of years as well due to decreased supply. A palladium deficit may range from 1 million to 1.277 million ounces in 2014, according to various estimates. Citigroup sees a 1.139 million ounce supply deficit during the course of the current year. According to the bank’s statistics, the supply of palladium has shrunk around 36% since 2008.

Like other metals, the price of palladium is also negatively correlated to the USD. The Fed’s stimulus reduction last week gave a boost to USD’s value and consequently we saw bearish pressure in palladium price. Moreover, uncertainty about emerging economies was also a key reason for the recent drop in palladium’s price.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.