Fundamentals
The positive bias in the Copper market has been fueled by expectations of strong Chinese demand. While this had been the dominant force for many traders, the Chinese New Year celebration has given some traders a chance to take in news and data from elsewhere. US retail sales were disappointing yesterday, inching up 0.1%. Given the fact that sales are typically soft following the holiday shopping season, the figure was not expected to be jaw-dropping. The results were in line with estimates, but the anemic number indicates that higher taxes may be curbing spending. In Europe, the Eurozone economy shrank 0.6%, which is the worst result since the depth of the 2008-2009 recession. Shrinking economic growth in Europe and the US may have a negative impact on the Copper market. Economic contraction and higher taxes could detail the housing recovery, which puts the ball in China’s court. Counterbalancing the negative economic news from the industrialized West, Rio Tinto has stated that its Oyu Tolgoi mine in Mongolia will remain closed until the company resolves its issues with the Mongolian government. The government is asking for a greater share of the profits, stating the country has not benefited enough from the mine’s development. The Mongolian government’s ownership interest in the mine is 34%.
Technical Notes
Turning to the chart, we can see the March Copper contract steadily climbing since November. Prices have recently pulled back after failing to test the 3.80 mark. There is resistance just north of the 3.80 level at 3.8250. If prices are able to cross through resistance here, the market may test the $4 mark for the first time in a year. The 20-day momentum is showing some bullish divergence from both price and RSI, suggesting possible near-term strength.
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