Very short term (1M):   Up
Short term (3M): Flat
Medium term (6M): Flat
Long term (12M): Flat
Resistances:
R1 1,779 June high
R2 1,881 Mar 2020 high
R3 2,038 Jan 2020 high
R4 2,265 Oct 2019 high
Support:
S1 1,737 100 DMA
S2 1,713 20 DMA
S3 1,551.50 Nov 2016 low
Stochastics:
Rebounding
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  
  • The LME three-month lead price is attempting to break above the horizontal overhead resistance line that we have discussed on the daily chart since June 16.
  • We include the LME lead weekly chart today to highlight two technical development that are in play.
  • Lead has bottomed out since since its March low, spending much of April-May consolidating near the 2020 low.
  • This is similar to the larger bottoming process in the second half of 2018 (see chart), which is confirmed by a similar weekly stochastic line.
  • We are seeing a potential repeat in technical play but the key now is to close positively above the 20 WMA continually and work its way towards the 50 WMA.
Macro drivers
New clusters of Covid-19 infections in Beijing and various key states in the United States have raised fresh concerns that reopening the economy remains challenging. We have no doubt that the easing of lockdowns in European countries will cause new clusters of infection to emerge. While this could disrupt economic activity, we suspect it will also change consumer behaviour, which could continue to damage demand.

While Chinese automotive sales rebounded for the second consecutive month in May, the sustainability of the recovery remains questionable. Auto sales across the rest of the globe are likely to shrink, particularly in Europe and the US, where record unemployment and a potentially high rate of insolvencies are likely to prevent a quick recovery.

Passenger car registration numbers from the European Union countries suffered another sharp drop, down by 52.3% in May and by 41.5% over January-May of 2020. The grim number is unsurprising considering the extreme lockdown measures. Still, we suspect the easing in lockdowns to will unlock pent-up demand in the coming months; we expect strong rebounds, similar to the much-improved auto numbers in China.

Still, lead-acid battery demand in the EU could remain challenging because government initiatives are focused on encouraging consumers to switch to environmentally friendlier electric vehicles (EV), which consequently take away market share from the traditional internal combustion engine (ICE).

LME lead's net short fund position increased by 600 lots. Longs unsurprisingly cut their bullish bets, selling 142 lots in the week to June 12, while the LME lead price was heading towards horizontal overhead resistance. But to our surprise, shorts chose to reduce their bearish bets too, with 447 lots removed. We can only speculate that gross shorts are not too keen to maintain their bearish exposure if LME lead price were to break above the horizontal resistance line at $1,775 per tonne.

Conclusion

Progress toward the price target of $1,800 per tonne will take a couple of weeks but given how LME lead price has underperformed the rest of the complex  the move to the upside is justifiable.


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