Copper Broke Lower As Expected

COPPER TODAY – Further upside capped by DTL off September 2015 high

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By Andy Farida, andy.farida@fastmarkets.com +44 (0)1722 439411

Short term: Medium term: Long term: Resistances: R1 4889 September high R2 5032 July high R3 5091 April high R4 5131 March high R5 5358 October 2015 high Support: S1 4782 20 DMA S2 4761 50 DMA S3 4631 April low S4 4492 78.6% Fibo Jan low to March high S5 4483.50 June low S6 4430 February low S7 4318 Low so far Legend: DMA = Daily moving average Fibo = Fibonacci retracement level RSI = Relative strength index H&S = head-and-shoulder formation
Analysis The zoomed-out daily chart continues to show a very subdued rally that is capped by the DTL off the September 2015 high. This has acted as a strong ceiling, stopping the advance in copper prices beyond the thin red line. Bulls have tried to break above it on numerous occasions and it seems that it will continue to erode. If a break higher materialises, the move will be a very powerful one. But copper prices will be damaged buy a break below the DTL off the January low. The prevailing price structure as well as the technical indicators resemble the set-up of the May sell-off (see daily chart). Should we see a repeat, copper prices could fall – the daily RSI is already treading lower, followed by the weakening stochastic lines. Meanwhile, nearby support comes from the 20 DMA and then the 50 and 100 DMAs. Macro drivers With China away on a week-long national holiday, the base metals seem to have stalled and lack the impetus to break higher. As well, better-than-expected economic data out of the US has firmed the dollar, further raising the probability of a rate rise as early as November. An in crease could affect access to cheap finance and raise the cost of financing. Against such as backdrop, base metals might continue to consolidate lower. Copper’s net long fund position is seeing big shift while money managers grow more confident about being bullish. Fresh buying has outpaced selling at 7,953 lots and 4,628 lots respectively for a rise in the NLFP to 41,995 lots. At the current rate, it has the previous high at 48,190 lots in it sights. A well-supplied market and readily available secondary material are forcing physical premiums lower in the US. “We have cathode to sell but no one is paying even 5.5 cents,” one US market participant said. In Asia, premiums are unchanged. Sporadic large inflows to Asian LME-listed warehouses have kept total LME stocks elevated at 359,725 tonnes. Available stocks edged slightly higher to 283,425 tonnes. With no dominant warrant holder, the contango in the c/3s has widened to $21.25 – lending capacity is far more relaxed.
Conclusion Copper is consolidating again after finding fresh supply from the DTL off the September 2015 high. For bulls to advance, this resistance needs to be broken. Otherwise, there is a risk of a retest of the January low UTL.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

 

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