Nickel Pressured by Dollar Strength; Sell JJN
Persistent strength in the dollar is putting downward pressure on most metals right now in varying degrees. Some, like tin and aluminum, are resisting the greenback’s strength. Others, like gold and silver, are taking it on the chin as a result.
Nickel, unfortunately, is one of the metals suffering from currency-related pressures, with LME nickel futures down 2% in the latest session. The softness in nickel prices has put abnormal downward pressure on the stocks and tracking funds for nickel, putting the conservative position in our favorite nickel-tracking fund (see below) in a precarious position.
Our stop-loss in this trade was triggered earlier today on an intraday basis, and while the nickel fund has since recovered in afternoon trading, I think we should respect the initial signal, as I’ll explain here.
The main reason for respecting the intraday weakness in the nickel ETN is due to its sensitivity to currency market strength. And right now, the dollar in which nickel is priced is accelerating its recent upward trend. This is perhaps best shown by the most actively traded dollar-tracking ETF, the Invesco DB U.S. Dollar Index Bullish Fund (UUP).
As you can see, UUP has just broken out to new multi-month highs as foreign money flows into the U.S. financial market as a “safe haven” from global economic and geopolitical concerns.
Also lifting the dollar is the latest surge in U.S. Treasury yields, which serves to further increase the United States’ attractiveness for foreign investors while also putting pressure on the economies of nations with higher borrowing needs.
While there can be instances where nickel becomes temporarily disconnected from the dollar’s main trend (mainly due to serious supply-related imbalances), as a rule of thumb nickel is heavily influenced by sustained strength or weakness in the dollar index. And with the dollar’s relentless upward trend, it’s getting harder for nickel prices to gain any kind of traction.
What to Do Now
Traders were stopped out of a conservative position in the iPath Series B Bloomberg Nickel Subindex Total Return ETN (JJN) when the 23.90 (the nearest pivotal low) was violated on September 29 on an intraday basis for this trading position. We’ll wait until dollar-related weakness has dissipated before considering another foray into the nickel ETN. SELL