Very short term (1M):  Flat
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Flat

Resistances:
R1 $2,039 20 DMA
R2 $2,149.50 Feb 2020 high
R3 $2,459.50 2020 high
R4 $2,958 2019 high
R5 $3,780 Jul 2007 high

Support:
S1 $1,913 March 2020 low
S2 $1,900 Psychological
S3

$1,809 May 2016 low

Stochastics:
Oversold

Legend:

BB– Bollinger band
Fibo – Fibonacci retracement level
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
U/DTL – up/downtrend line
H&S – head-and-shoulder pattern
RSI – relative strength index


Analysis       
  • LME zinc produced a higher low and a potentially bullish double bottom formation. 
  • A positive close today above the psychological price level of $2,000 per tonne would give buyers the edge in the short term. 
  • Also, LME zinc's daily candle appears to be forming a bullish engulfing candlestick, perhaps enabling the price to continue higher for now. 
  • Given its improved technical configuration, we envisage a rebound here, with the declining 20 DMA its first target, followed by the 50% Fibo of the January high-March low.
Macro drivers
Major headlines around the world continue to fuel fear and uncertainty in the global market. The adverse impact of the coronavirus outbreak outside China has easily drowned out the positive developments in combating the spread inside China, while central banks' drastic measures are seemingly futile in stopping the decline in risk assets. Headlines about the Dow Jones industrial average index becoming a bear market, ending its 11-year bull run, attest to this.

Fresh cancellation of 1,625 tonnes in zinc have has fueled its price rise higher this morning. LME zinc stocks have also declined, reaching 74,600 tonnes, while inflows to the SHFE slowed considerably in the week to March 13. Still, inventories remain elevated at 169,911 tonnes.

There is undoubtedly strong evidence that zinc is already severely oversold, making it vulnerable to a counter-trend reversal - the risk-reward to the upside is far more favorable. LME fund managers continued to build their bearish exposure in zinc in the week to March 6 - shorts added 2,098 lots, which offset the buying of 253 lots by longs. LME zinc’s net short fund position (NSFP) expanded to 17,730 lots - a new record since the relaunch of LME commitment of traders’ report (COTR). But with the LME zinc price recovering, the overstretched NSFP is now at risk from short-covering.

We expects reduced inflow into the LME and SHFE in light of the supply disruptions in China. It will be in the coming weeks when the impact is felt; several reports suggest Chinese domestic zinc refineries may also be forced to cut production because of cash flow pressures borne out of limited trading activity. Major smelters Hanzhong Zinc Industry, Zhuzhou Smelter and Zijin Mining-Inner Mongolia have already cut 40-50% of their production.

Conclusion
The prospect of a rebound in the LME zinc price has grown stronger but it will need a positive close today or risk another sell-off. It will also need follow-through buying to emerge to lay the foundation for a medium-term rebound.


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