Bull?s In The ?Red? As Copper Prices Tumble
Fundamentals
Copper futures have been an ideal market for trend following traders since mid-summer as prices have been mired in a rather steady price decline. There are two major fundamental factors have been cited for triggering this bear market move. With slowing economic growth in China grabbing most of the headlines but we cannot dismiss the importance of a rising U.S. Dollar which makes commodity purchases more expensive for non-dollar users. Chinese government officials have continued to lower its target for economic growth from around 8% early in 2014 to about 6.5% looking out through the end of the decade. Copper prices were especially hurt by lower Chinese demand as the world?s most populous nation accounts for approximately 40% of global Copper consumption.
So while the world?s largest Copper consuming nation is seeing slower demand for commodities, a stronger U.S. Dollar is making commodities more expensive at the same time demand is waning. This is particularly apparent in the Wheat market, where U.S. exports are just not competitive on the world market due to a strong Dollar. With the Federal Reserve apparently eager to begin to raise interest rates, possibly as early as the December Federal Open Market Committee meeting, Copper prices and commodity price in general, may face further headwinds should the ?greenback? continue to strengthen.??????????? ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for December Copper futures, we notice the bear market trend has re-asserted itself after a nearly 2-month long consolidation pattern failed to hold. Prices are now well below both the 20 and 200-day moving averages, and the 14-day RSI has moved well into oversold territory with a current reading of 17.81. So, while it appears that a short-covering rally may be overdue, recent strength in the value of the U.S. Dollar is acting as a strong headwind towards a price recovery. Large speculative accounts have been adding to existing short positions the past several sessions, with the most recent Commitment of Trader?s report showing non-commercial traders increasing their net short position by nearly 15,700 contracts during the reporting period ending November 10. This is prior to the sharp price decline seen the past few sessions as it appears that trend following funds are adding positions despite prices trading near 6 year lows. Tuesday?s low at 2.0660 looks to be the next support level for the December futures, with resistance found at 2.2505.??
————————————————————————————————–
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the “Disclosure Statement for Futures and Options” prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.