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Copper Charges Higher While US Dollar Rides Up on Inflation Fears. Are New Highs Ahead?

Copper Charges Higher While US Dollar Rides Up on Inflation Fears. Are New Highs Ahead?

Daniel McCarthy, Strategist

Copper, US Dollar, GBP/USD, AUD/NZD, China, Bank of England - Talking Points

  • Copper joined other commodities higher on low inventory numbers
  • Commodity currencies languished but not NZD, as data drove up yields
  • US Dollar gained on inflation fears. Will it impact commodity prices?

Copper is continuing a steady march higher despite the US Dollar strengthening today. It is approaching all-time highs on a run down in inventory, as energy costs hinder production capacity. After rallying 10% last week, Comex futures are trading 1% higher in Asia ahead of the London Metals Exchange (LME) opening.

Bank of England (BoE) Governor Andrew Bailey indicated that the bank has to act to curb inflationary conditions. His concern centred around a change in expectations that he believed could occur if inflation stayed higher, emerging from sky-high energy prices that we are currently seeing. Prior to these comments, a number of BoE officials appeared to be laying the groundwork for tighter policy.

Adding to inflation concerns, New Zealand data released today showed inflation there was running hot, coming in at 4.9% against the forecasts of 4.1%. This drove New Zealand 10-year government bonds yields 15.5 basis points higher and dragged other G-10 yields with it to varying degrees.

The New Zealand Dollar was the only commodity currency to end in the green. Higher yields and inflation fears pushed the US Dollar up.

Chinese GDP to the end of the 3rd quarter came in at 4.9% y/y against expectations of 5.0%. Industrial production printed at 3.1 % y/y missing forecasts of 3.8%. Retail sales data was also released at the same time and was a bit better at 4.4% y/y when 3.5% was anticipated.

Looking ahead, US industrial production and capacity utilization numbers are due for release.

COPPER (COMEX) TECHNICAL ANALYSIS

Copper broke up through resistance levels at 4.4715 and 4.6275 and these levels are now pivot points that might provide support if they are tested.

The 10-day simple moving average (SMA) crossed above the 100-day SMA and this could be a signal of bullish momentum. This formation is known as a Golden Cross.

On the topside, the May high of 4.8880 could provide resistance.

COPPER (COMEX) CHART

Copper Charges Higher While US Dollar Rides Up on Inflation Fears. Are New Highs Ahead?

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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