Copper Sells Off Along With Other Metals – Chinese Support Missing

Copper continued to trade lower on Thursday, heading towards a lower finish for every trading session in the week thus far. Upbeat data from the U.S. services sector boosted the dollar, while holidays in China squeezed liquidity and trading volume in the market.

Copper prices have lost nearly 3% since the start of this week amid thin volume as Chinese markets are closed. The absence of Chinese traders due to the Golden Week holiday left the industrial metal market vulnerable to currency moves. As a result, dollar-denominated commodities including copper have been weighed down by a stronger dollar.

The U.S dollar held on to its strength as expectations over a rate hike this December are getting stronger after a spate of positive reports released recently. Further supporting the case for a rate hike is the rally in oil that started since the informal meeting between OPEC members which brought about an agreement on an output ceiling. A rise in oil prices is expected to help the Federal Reserve to partly solve its concern over U.S inflation, as higher energy prices bring about a trickle down effect through higher prices across the economy.

The Fed delayed its plans on raising rates in September, considering an economy that was growing unevenly, and low consumer prices. The central bank does not expect the personal consumption expenditure index (the bank’s favorite gauge for inflation) to hit the 2% target until 2018. However, given a rise in oil prices that will boost general costs across the economy, U.S inflation is forecast to reach 2.3% next year, the IMF said.

Markets have already turned their attention to the monthly U.S. payrolls report on Friday. The median forecast from economists is calling for an increase of 175,000 in the number of new jobs created in September. Strong jobs data is considered a sign of a strengthening economy, and will cement the case for a rate increase, especially after a spate of positive reports released recently.

One more factor contributing to the strength of the greenback is that U.S stocks ticked lower today. Perceived as a safe haven asset, investors has been flocking into the currency as cautiousness ahead of Friday’s jobs data is holding investment off risky assets.

The general strength in the US dollar coupled with across the board selling in metals including gold and silver has brought about significant weakness in the Copper market. This trend is expected to continue should the NFP data deliver a strong reading tomorrow as rising interest rates are expected to throttle the run-away demand for commodities by  increasing the costs of borrowing for industrial and infrastructural projects which are a major source of industrial demand for base metals such as Copper.

COPPER Technical Analysis

copper

Fig: COPPER H4 Technical Chart

Copper has fallen back into the congested trading range that has contained prices during mid-late September. However, the decisive down moves seen recently suggest that prices could break out of this range soon. The support at the 50.0% Fibonacci retracement level looks likely to be retested. As we are close to the weekend and the Chinese market is coming back next week,  it is not certain that the price could decisively breach this level. The RSI is also nearing the oversold zone and therefore the market could witness a period of quiet despite the fact that both MA’s are currently placed above the price action.

Trade suggestion

Sell Stop at 2.1440, Take profit at 2.1320, Stop loss at 2.1580

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