Nickel market round-up: Is the relief rally here to stay?

Read more from senior analyst Andy Farida on how the price action in LME nickel has played out in the first half of 2024

Below, Fastmarkets senior analyst Andy Farida looks at London Metal Exchange nickel price movements and discussed in his March 2024 report to subscribers how the relief rally is the dominant trend playing out in H1 of 2024.

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Below is the nickel monthly chart with an outlook for 6-12 months.

Dominant trend: Relief rally in H1 is currently in play

In the last quarterly review, we wrote that we were mindful of staying too bearish over the next three to six months and suspected that an elusive relief rally could emerge first. This would be with an upside target of the 50 monthly moving average (MMA) at $19,658 per tonne, or just below the psychological price level of $20,000 per tonne.

Following up on the current price action, we maintain the view that the 50 MMA will provide solid overhead resistance in perhaps the second quarter of 2024 and send the nickel price lower to again take out the 100 MMA. This is depicted in the above price sequence of D to E.

Our longer-term downside targets include the rising 100 MMA, last seen at $15,832 per tonne, and then the 1998 low UTL that sits just above $11,000 per tonne.

To negate our bearish monthly outlook on LME nickel, we need to see the price trading above the 20 MMA for at least two consecutive months.

Below is the nickel weekly chart with an outlook for three to six months.

Dominant trend: Any relief rally in H1 will attract fresh selling pressure

In our last quarterly report, we stressed that despite the overwhelming bearish dynamics, we were mindful that the nickel’s weekly momentum indicators we follow – the RSI and stochastic lines – indicate a potential bullish divergence.

We also added that for the medium term, we envisaged some bullish price action to emerge over the coming months and nickel could potentially produce a reasonable rebound to test key resistance levels, namely the declining 20 weekly moving average (WMA) and the 50 WMA. The LME nickel price has taken out the 20 WMA, and at the time of writing this report, it is fast approaching the 50 WMA.

We now envisage the LME nickel price to maintain the bear market rally and any dips (should it emerge to retest the lows of $16,000 per tonne) to attract buyers.

We are more interested to see how the LME nickel price will react when it starts to trade near $20,000-per-tonne level.

Macroeconomic conditions and the nickel market

The sizeable and overdue relief rally that we have been waiting for has emerged in the second half of the first quarter of 2024. We envisage this relief rally to allow the LME nickel price to target the psychological price level at $20,000 per tonne before continuing lower again in the second half of 2024.

We admit that the above is a very speculative view, but the macroeconomic conditions in the first half of 2024 should remain constructive, following the dovish statements from US Federal Reserve Chairman Jerome Powell, a weakened dollar index and Chinese authorities that are actively supporting key sectors with fiscal and monetary stimulus.

A short-term rebound is warranted with the macroeconomic conditions out of China improving, the US cruising towards a soft landing and while Europe ticks along without going into a full recession. Demand numbers from global electric vehicle sales should stay robust, but we are mindful that the backdrop of persistently high interest rates and the cost of living crisis will start to affect overall automotive sales potentially in the second half of 2024.

Please take note that market dynamics in the LME base metals space are fluid and ever changing. We have included the round-up from the first and second quarters for comparison and with the overall aim that this report is written to provide a clear visual of the risk to reward, which is the dominant trend and identify the key support and resistance levels.

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

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