FxWirePro: Platinum grabs spotlight as palladium plateaus – Use near-month futures for longs

Platinum prices were on New York futures markets on Wednesday falling 2% to a low of $983 an ounce. Palladium was also weaker at $1,033 an ounce. PGMs were the hardest hit on generally weak precious metals markets Tuesday on the news that German court ruled that cities in Europe's largest economy and world's fourth largest automaker have the right to ban diesel cars.

In late January, we published a note emphasizing our then near-term bearish bias on palladium as the upward trend was looking exhausted after it had failed to break above $1,140/oz.

Platinum grabs the spotlight as palladium plateaus. Both look vulnerable if the dollar stabilizes. The spot palladium prices have declined steadily.  In terms of trade recommendations, we hesitated given the uncertainty around the direction of the US dollar and failed to capture the move lower.

That being said, the bearishness we flagged was chiefly for the near term. Essentially, palladium had outpaced all forecasts and looked to be at an inflection point technically, but its longer-term fundamentals still looked very supportive. Now well off the mid-January high, the technical picture has turned more near-term bullish and we have also boosted our price forecast for palladium, now seeing it average $1,150/oz through 2H’18.

Thus, we recommended going long Mar’18 palladium. As for risks to the trade, the largest threat for our bullish view across metals remains the potential for a further rebound in the US dollar and/or a further sell-off in equities and other risk assets.

For palladium more specifically, the largest fundamental risk in the near term has potentially eliminated the weakness in the physical market on Chinese New Year (which is over now). Outside of that, while we did see some liquidation of managed money net length over the last three weeks of data, we still remain at quite elevated levels, meaning the risk of further liquidations persists, in our view.

Went long Mar’18 NYM palladium at $999.35/oz on February 6, 2018.  Trade target is $1,150/oz with a stop at $950/oz.  Marked to market at $957.75/oz on Feb 8th 2018, for a loss of $41.60/oz or -4.2%.

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