Very short term (1M):  Up 
 Short term (3M): Flat
Medium term (6M): Up
Long term (12M): Up
Resistances:
R1 12,319 20 DMA
R2 12,565 50 DMA
R3 13,020 Oct 9 high
Support:
S1 12,085 Sep 12 low
S2 11,500 Psychological 
S3 11,475 recent low
Stochastic:
Bearish
Legend:

BB - Bollinger band

DMA – daily moving average

Fibo - Fibonacci retracement level

HSL - horizontal support line

SL - support line

MACD - moving average convergence divergence

DTL - downtrend line

UTL - uptrend line

H&S - head-and-shoulder pattern

RSI - relative strength index

Analysis
  • The LME three-month nickel price continued lower on Wednesday October 31, reaching a fresh 2018 low of $11,500 per tonne. 
  • If the downtrend channel is drawn correctly, nickel could continue lower to test the underbelly of the channel (see chart) around $11,200-11,300 per tonne. 
  • Its technical indicators are far from supportive - the daily RSI is already in oversold territory while the stochastic lines remain firmly bearish. 
  • Given the prevailing trend, nickel could target the December 2017 low; if so, the price could retest $10,740 per tonne.
Macro drivers
The bullish run in the dollar index has started to wane at the start of the new trading month. It was down 0.44% at the time of writing, provided tailwinds for under-pressure commodity currencies to recover higher. This appears to be enough to stop the yuan from further weakening towards the psychological 7.00 level for now. As well, global risk sentiment has mildly improved - major equity markets are recouping some of the losses incurred in the October sell-offs. An improving macroeconomic backdrop bodes well for mild buying interest in the base metals this morning.

LME nickel stocks remain fairly low at 218,868 tonnes this morning, with at least 22% of available stocks assigned for removal. But the pace of outflows from LME-approved warehouses has slowed considerably. There is also growing concern that most of the metal removed since the start of the year is merely being locked away in financing deals - so there is a threat that it could one day return as off-exchange stock.
The market deficit also contracted mildly to 95,500 tonnes in January-August from 97,100 tonnes in the first seven months of 2018. This exacerbates our previous concern that LME nickel faces greater downside risk from the optimistic demand outlook from the production of electric car batteries than from the decline in demand from Chinese stainless steel mills. While it is easy to portray the poor demand outlook as being due the US-China trade war, the nickel market also needs to deal with growing supply, both from mines and from refined output.  
Indonesia-China joint ventures are putting together new expansion plans, with JNMC, Shanghai Huadi Industrial and Xinxing Ductile Pipes Iron reportedly boosting investment and construction in Indonesia. The potential increase in mine supply is immense and is likely to expand further in 2019. Nickel pig iron (NPI) projects in Indonesia will ramp up toward the end of 2018, Antaike estimated in a recent report, potentially bringing an additional 59,000 tonnes per month into the market. NPI output from Indonesia of an expected 290,000 tonnes in 2018 would be up around 100,000 tonnes on last year.

Conclusion
Judging by the daily chart above, the bullishness since the April 2018 high at $16,690 per tonne has been absent. The run-up from May 2017 low has taken its toll on the upside momentum and the technical pullback that we are witnessing remains part of a healthy market. But it also reflect a lot of misconception about the extremely bullish outlook on the metal and the discounted price continues to suggest that LME nickel price is attempting to rebalance while reflecting the challenging macroeconomic backdrop.

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