Commodity currencies all came under pressure this morning after the dollar index strengthened to a new 2018 high at 97.50 at the time of writing. The rhetoric in the US Federal Reserve's meeting minutes from November 7-8 remained hawkish, raising the probability of another rate increase in December to 75.8%, according to the latest CME FedWatch tool. 

Even though the metal has a great deal of upside potential due to its tightening fundamental backdrop, the fresh selling from speculative funds, a sizable rewarranting and fresh inflow into the SHFE system are likely to keep the upside capped in the short term. Also, the market focus remains on the simmering US-China trade war, which seems sufficient to limit any upside momentum for now.

The kneejerk reaction higher on November 8 due to the potential supply disruption from an emissions-related shutdown at Port Pirie was quickly discounted too. The shutdown of one of the furnaces at Port Pirie is not expected to have a material impact on lead production in 2018. Instead, the physical lead market faces downside risk to its price action due to rising availability of stock. Lead premiums in India declined after several domestic smelters, including Gravita, expanded their capacity. While there is no sign of Iranian materials (due to US sanctions), traders are happy to trade units from other countries. Abundant supply in the region and a lack of spot demand have eroded the downside pressure for now. 

LME stocks have fallen further to 111,325 tonnes but total cancelled warrants remain low at 8,875 tonnes, which suggests a weak outlook for physical demand. SHFE stocks have risen to 9,434 tonnes after inflow of 1,390 tonnes in the week to November 9. Rising SHFE stocks are easing previous concerns that Chinese lead smelters were unable to source enough material to produce refined metal.

LME fund managers maintained a net short fund position on lead metal at 125 lots in the week to November 2. Fresh buying of 2,792 lots easily offset the selling of 1,897 lots. But the NSFP remains vulnerable - the recovery into November 7 has given in way to fresh selling pressure again.

Conclusion
While we maintain the view that the lead's technical configuration is still oversold, the selling pressure is clearly not over yet. So we would let the selling run its course but remain mindful that any fresh development from the US-China trade disputes could spark a strong counter-trend run in the LME price.