The June futures contract of zinc on the Multi Commodity Exchange (MCX), which was largely consolidating between ₹153 and ₹160 since the first week of May, broke out of the range on Monday, increasing the prospect of a sustainable rally. The contract, which now hovers above the 21-day moving average (DMA), has formed a higher-high higher-low price action — an indication of bullish momentum.

As the contract has been trading with a bullish bias, the daily relative strength index (RSI) is above the midpoint level of 50. Also, the moving average convergence divergence (MACD) indicator on the daily chart is now in the positive territory. Hence, the contract can turn bullish as long as it remains above the key support at ₹153.

On the back of the fresh breakout, if the contract rises from current levels, it might face a hindrance at ₹170. Above this level, it might rally to ₹175. On the other hand, if the contract is unable to sustain above ₹160 and declines, the price area between ₹155 and ₹153 can act as a support band, possibly limiting the downside. At ₹153, the 50-DMA coincides, making it a significant support. A break below ₹153 can intensify the sell-off.

On the global front, the three-month rolling forward contract of zinc on the London Metal Exchange (LME) rallied last week where it moved above the important level of $2,000. The contract can remain bullish as long as the price stays above that level. If the contract gains, it could lift it on the MCX too.

Trading strategy

While the contract on the LME rallied last week and breached a crucial level, the contract on the MCX too broke out of an important hurdle. Thus, the metal seems to be gaining traction which could lift the price further. Hence, traders can initiate fresh long positions on the MCX-Zinc on declines with stop-loss at ₹153.

Note: The recommendations are based on technical analysis. There is a risk of loss in trading.

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