FxWirePro: Encourage palladium longs in Q2’2018 with attractive risk/reward ratio as dollar stabilizes

Stay long Jun’18 NYM palladium: In our last publication, a post emphasizing our near-term bearish bias on palladium, as the northward trend seemed exhausted after it had failed to break above $1,140/oz.

Well, on trading grounds, we hesitated given the uncertainty around the direction of the US dollar and failed to capture the move lower. That said, the bearishness we flagged was chiefly for the near term.

Essentially, palladium had outpaced our 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, we think the technical picture has turned more near-term bullish and we have boosted our price forecast for palladium, now seeing it average $1,125/oz over 2H’18.

Thus, we recommended going long. As for risks to the trade, the largest threat we see to 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.

With holdings in exchange-traded funds (ETFs) backed by palladium reaching lows not seen since 2009, owning and leasing the metal has become a more appealing route for fund managers. The business of leasing palladium has gained attention from hedge funds, which has resulted in withdrawals from ETFs backed by the metal.

Added longs in Mar’18 NYM palladium at $999.35/oz. Rolled to Jun’18 contract with the gain being embedded in the new entry price of $999.05/oz.  Trade target is $1,150/oz with a stop at $950/oz. Marked to market at $984.90/oz. Courtesy: JPM

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