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Palladium Prices Jump to Record High But Signs of Trouble Brewing

Palladium Prices Jump to Record High But Signs of Trouble Brewing

2019-10-29 02:00:00
Ilya Spivak, Head Strategist, APAC
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PALLADIUM PRICE OUTLOOK – Talking Points:

  • Palladium prices jump to record high, probing above $1800/oz
  • Negative RSI divergence warns blow-off top may be in the works
  • Headwinds gather amid global slowdown, US-China trade war

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

Palladium prices broke resistance at 1782.82, the October 17 swing top, to hit a record high. The next layer of resistance is marked by the 23.6% Fibonacci expansion at 1829.55. A break above this barrier confirmed on a daily closing basis opens the door to challenge the 38.2% level at 1887.92.

Caution is warranted however. Acutely negative RSI divergence points to ebbing upside momentum, warning that a blow-off top followed by a reversal downward may be in the cards. A daily close below the $1700/oz figure seems like a prerequisite for bearish confirmation, exposing the 1604.50-15.50 area next.

Palladium price chart - daily

Palladium price chart crated with TradingView

PALLADIUM MAY SUCCUMB TO GLOBAL SLOWDOWN, US-CHINA TRADE WAR

Physical factors have been the top driver of the palladium price rally. It is used in catalytic converters that reduce auto emissions. Supply shortages along with growing demand for cleaner cars has spurred gains. This dynamic is probably not immune to a demand-cooling global economic slowdown however.

Data from the OECD pointing to a plunge in foreign direct investment (FDI) is just the latest example of the darkening outlook on worldwide growth. The central role of ongoing US-China trade war is particularly worrying since the East Asian giant is the largest buyer of palladium on global markets.

When these headwinds become potent enough to topple prices is unclear. Indeed, an upshift in the 2020 palladium futures curve over the past month implies bets on a broadly higher pricing structure. Nevertheless, it is in contango, hinting investors expect the metal to be cheaper next year than today.

PALLADIUM TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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

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