Short Copper
- US data propels the dollar higher and now sees markets pricing a Fed hike in November
- A stronger US dollar coupled with waning Chinese industrial activity places downward pressure on the industrial metal
- Chinese and US inflation data up next
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
Chinese Data Trend Breeds Pessimism While US Data Holds Up
On Thursday, US services PMI data from the Institute of Supply Management surprised to the upside, indicating that the US economy is still advancing. Key metrics that help make up the overall report like new orders, prices and business activity/production all pushed higher. As a result, markets now favor a final 25 basis point hike from the Fed in November, although, it is by the slightest margins.
In the coming days both China and the US are due to report updated inflation figures. The US has made general progress on inflation while China buckles up for the fight against deflation as internal and external challenges accrue.
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A stronger dollar and the potential for further deteriorating conditions in China could place downward pressure on copper as Chinese appetite for the metal declines. Copper recently enjoyed a move to the upside, reversing after tagging the 200-day simple moving average just beneath the 8650 zone of resistance.
The rejection of a move higher at the 200 SMA followed by a potential close below the long-term trendline support opens up the metal for a continued selloff. In addition, the stochastic oscillator has recovered form overbought territory – prior observations resulted in periods of lower prices. 8143 represents the first target level for the bearish setup, followed by 7867. Invalidation of the bearish setup appears at 8650.
Copper Daily Chart Courtesy of IG
Source: IG, prepared by Richard Snow
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--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
