Copper futures - daily chart 15th November 2010
The commodity markets in general and copper futures in particular suffered a sharp sell off on Friday, as speculation increased that China will move it’s interest rates higher again, as it attempts to dampen the threat of inflation which is now becoming an increasing issue for the Chinese economy. As such the commodity markets pulled back on the prospect of reduced demand for crops, metals, energy and base metals such as copper, with the Thomson Reuters/ Jeffries CRB index falling 3.6 per cent on the day, it’s biggest fall since April 20th 2009. The speculation of a rate rise in China was fuelled by recent fundamental news, with both producer and consumer prices increasing, with the latter in particular surprising the commodity markets with a 4.4% gain from a year earlier in October, and it now seems likely that we will see a 0.25% rise in rates in due course.
Copper of course continues to remain the bell wether for base metals, and Friday’s steep move lower triggered other metals to follow suit, with the December copper futurs contract ending as a wide spread down candle, breaking below the psycholigical 400 level and closing just above the 14 day moving average which provided a platform of support as a result. This indicator is now key in the short term, and is doubly important as it currently sits at the 388 level, and therefore this price area should provide the requisite platform of support in due course. Any breach of the 14 day moving average may open the way for a test of the 40 day moving average in the 377 area, and provided this holds firm, then the longer term trend for copper should be re-established in due course. Despite Friday’s move lower, the longer term outlook for copper remains firmly bullish in my opinion, since the fundamentals of the market have changed little, with supply failing to meet demand, and despite the fact that China is the largest consumer of copper, Friday’s reaction to the news was over done, and as such we can expect to see commodities bounce back early this week.
