Zinc sell

Optimism in the industrial metals market diminished after the news from China

06 March 2023 184
Optimism in the industrial metals market diminished after the news from China

Zinc prices tried to break through the resistance level of 3140 last week, but failed again. Seeing unsuccessful growth attempts, the "bears" may turn the price in the opposite direction, closer to the local February lows near the 2960 level. The news context also suggests lower expectations for industrial metal prices.


Triggers for zinc prices began to emerge last week, as Purchasing Managers’ indices were released in the US. The PMI for the services sector stood at 55.1 in February. This value was above the expected 54.5. The latest manufacturing PMI also exceeded expectations and stood at 50.6. Such positive dynamics of business activity corresponds to February's accelerated inflation, which is bad news for all dollar-denominated commodity assets.


The China National People's Congress took place this weekend, where the GDP growth target for 2023 was outlined. China's economy is expected to grow by 5%, which is more than 3% growth of last year, but less than almost all economists and analysts had previously projected (5.5-6%). No new major stimulus packages were announced. Accelerated economic growth suggests that China's demand for commodities will increase, but this growth will be limited.


According to Jiang Hang, head of trade at Yonggang Resources Co, the Chinese government has made it clear that it is aiming to stabilize the economy rather than to provide large-scale stimulus. He also thinks that investors in metal markets are too optimistic in their expectations. Commonwealth Bank of Australia’s analyst Vivek Dhar assumes a probable decline in demand momentum for commodities.


The first downside target for zinc prices is the circular level of 3000 and then February’s lows near 2960.


The following trading strategy can be suggested:


Sell zinc not higher than 3050. Take profit 1 — 3000. Take profit 2 — 2960. Stop loss — 3070.

Traders can also use Trailing stop instead of a fixed Stop loss at their discretion

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

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