Technical analysis signals a continuation of the aluminum correction

08 February 2023 159
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Aluminum moved to a corrective movement after an uninterrupted 19% rise. On the base of the Fed's statements and the world market situation, the aluminum decrease may continue.

 

European media reported that secondary aluminum prices in Europe are showing the first signs of recovery after a three-week decrease. Despite this, analysts expect difficulties with demand for the metal this year. 

However, some experts currently focus on the relative growth in demand after the difficult final quarter of 2022.

Although demand has begun to grow in Europe, for now these are "early signs" that may disappear with the first cold weather. The main growth driver in recent weeks was the reopening of China. Now this driver has been played back and aluminum is trying to find a point of equilibrium price.

 

The International Aluminum Institute (IAI) reports global aluminum production in December of last year at the level of 5.859 million tons. The increase compared to December 2021 was 6.12%. 

Global aluminum production increased by 2% over the last year. The growth rate of the indicator decreased by 0.7% compared to 2021.

It is obvious that both production and demand for aluminum will continue to grow in the coming months. And again, thanks to the reopening of the Chinese economy.

 

According to the technical analysis, the aluminum price is going below the medium-term uptrend. Also, the last couple of sessions, aluminum was trading in a rectangle on the hour timeframe, now there is an exit from it. Thus, there are preconditions for the opening of short positions in combination with the fundamental external background. According to the RSI the oversold area is not reached yet on the daily timeframe, which opens the way for the continuation of the decrease. On the RSI indicator, the situation is similar, the indicator is in the neutral zone.

The target for the decrease can be the Fibonacci level of 0.382. Also, this level is equal to the height of the rectangle, from which the aluminum is exiting now. As a result, the target for the decrease is about $2,450. Stop-loss can be set at the exit from the rectangle upward at $2,550. This level was also resistance in January of this year.

 

Decrease in the price of aluminum:

Take profit – 2 450

Stop-loss – 2 550

This content is for informational purposes only and is not intended to be investing advice.

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