LME MORNING - Base metals technically overbought but rally shows no sign on slowing

By: Kathleen Retourne

London 26/01/2012 - Base metals rose alongside the euro on Thursday morning after the US Federal Reserve's comments on interest rates and possible quantitative easing (QE) weakened the dollar .

Wednesday's dovish FOMC statement - Federal chairman Ben Bernanke said that additional QE remains a viable possibility because he is not yet ready to declare that the US economy has entered a stronger phase - sent the dollar to a five-week low of 1.3162 against the euro, lifting commodities priced in the US currency.

“Prices are profiting, among other things, from the weak US dollar and the Fed’s declared willingness to embark on another round of quantitative easing should this become necessary,” Commerzbank said.

In the eurozone, Greece’s prime minister is set to hold new talks later today on a debt swap deal, although many observers believe the country is likely to declare a default further down the line.

“The FOMC statement has boosted markets, the weaker dollar giving a further lift to metals this morning,” a trader said. “Technically, metals are looking overbought, some more than others. I struggle to find reasons to advocate the current strength - risk is clearly to the downside as this plays out and current economic woes continue.”

"From a technical point of view, everything is overbought,” a second LME trader said. “But the Fed [statement] overnight had a drastic effect on the euro, and this is pushing all commodities higher. We should see some consolidation at some point but for now I would go with the flow.”

China, which has been out of the market all week, will be watched closely upon its return on Monday - the market is keen to see what the country’s intentions are when it comes to purchasing metals.

“China has stepped up its metal imports ahead of the Chinese New Year and the question is whether the latest uptick in imports was just due to stockpiling or whether end-user demand has indeed continued to strengthen,” Credit Suisse said.

In the metals, copper jumped to a fresh four-month high of $8,595 per tonne and then held at $8,579.50, up $195.50 on the previous close. Inventories fell for the 17th successive day - down a net 1,875 tonnes at 337,875 tonnes, a fresh 28-month low.

Cancelled warrants - metal booked for removal - rose 10.4 percent to 81,450 tonnes, the highest since May 2009, due to a 9,500-tonne cancellation in St. Louis.

Aluminium hit $2,282.50, its highest for three months, up $30.50. Inventories declined 3,650 tonnes to 5,000,150 tonnes.

Nickel traded at $21,375, up $435, and a three-month high. But stocks rose for the fourth day in a row - up 348 tonnes to 94,452 tonnes, the highest since October.

Zinc stocks fell 675 tonnes to 848,500 tonnes, with business at $2,203 up $28. Lead gained $28 to $2,310, the first time it has scrambled above $2,300 in four months.

Tin prices skipped above $23,000 to peak at $23,060, a three-month high, before settling back to $22,860, still up $410. Inventories are now the lowest since March 16, 2009 at 9,665 tonnes.

 (Additional reporting by Martin Hayes, editing by Mark Shaw)