Focus on COMEX Copper futures (Sep’10)

The last 3 weeks has seen COMEX Copper market trend higher. The drive higher has been largely lead by the return of risk appetite in the markets and (more…)

Focus on COMEX Copper futures

The last 2 weeks have seen the COMEX Copper market recover from its 2010 lows. This has been in spite of the recent volatility in risk trades across the board and the (more…)

Focus on COMEX Copper futures (May’10)

The last week saw the market push lower on concerns that the Eurozone issues will spread causing the global economic recovery to stall. The market has also (more…)

Focus on COMEX Copper futures (May’10)

The last week saw the market edge lower to test major support around the $346.65 level. The gradual move lower over recent days has been primarily lead by (more…)

Focus on COMEX Copper futures (May’10)

The last 3 weeks has seen the copper futures break to new yearly highs as the optimism surrounding global economic recovery increases. The market is now trading firmly above the 355.00 handle.

Thoughts from the trading floor

The technical outlook for the market favours the bulls currently. Since the break higher at the end of March, the market has traded largely sideways, however this has technically allowed the ‘overbought’ signals to dissipate whilst the market has held on to the majority of its gains. The market is now poised to continue its up-trend. Strong technical support between the 345.00 to 355.00 area underpins the short-term bullish strength of the market. Another leg higher in the coming days should be enough to see it through the 368.00 recent top. Bears have been backed into a corner. Gains through the 368.00 level will spark further covering of shorts and thus will need to be protected. Ultimately bears will have to see the market back below the 345.00 to 355.00 level before they can start to shake out over extended longs from the market.

Copper, as with other commodity markets, has a historically had a very strong negative correlation with the USD. We have however seen a stark change in correlation in recent weeks. Although the USD index has traded higher over recent weeks, the market has selectively chosen to concentrate largely on the USD against key commodity currencies, such as the Aussie and the Canadian Dollar. This is primarily due to the heavy weighting of the Euro in the USD Dollar index. The steady downtrend of European currencies against the USD has distorted the index as it continues to remain under-pressure against the major commodity currencies.

The one major factor which has held back the industrial commodities from rising sharply, in line with other risk trades, over the last 2 weeks has been the continued chatter over further monetary tightening by the Chinese authorities. Talk of an upward revaluation of the Chinese Renminbi remains the major underlying fear of markets closely linked with Chinese consumption. With the Chinese GDP and inflation numbers suggesting that recent curbs in loan growth by Chinese authorities has failed to make a significant impression, chatter over an imminent revaluation have held back the Copper markets as well as Chinese stocks. However, if we do not get any tightening of policy in the next 2-3 weeks, we may see the market “climb a wall of worry” and rise regardless. This is backed up by the technical outlook for the market.

Bull View

The bulls will be hoping that this over-optimism (or ‘bubble’) can continue. For this to happen, Chinese markets must remain strong and the USD must weaken against the major commodity currencies. They hope that neither the Chinese nor the Fed remove excess liquidity support from the markets.

Bear View

The bears will see the current trend in commodity markets as over exuberance. The uncertainties surrounding the precarious fiscal uncertainties of some major global economies and the threat of imminent liquidity removal will keep bears interested in the medium term. Also the strong trend higher in major commodities of late may lead to a similar situation as we saw in the Summer of 2008, where high commodity prices hurt a fragile global economy battling the credit crunch.

Futex View

We continue to back the bursting of the bubble hypothesis. Globally markets seem to be going through this positive feedback loop created with cheap liquidity. We continue to look for further weakness in industrial commodities, as they seem fundamentally over-valued, especially in-light of the speculative drive up we saw in commodities on the back of USD carry trade. The Aussie/USD is the best correlated currency pair for industrial metals.

22^nd October 2009

Commodity Overview

Focus on COMEX Copper futures (Dec’09)

 Yesterday copper broke out to the up-side of its recent range. The market had spent the last 8 weeks trading between $290.00 and $270.00 on the Dec’09 contract. Continued USD weakness has spurred further risk appetite helping the market break through previous YTD highs at 298.85. (more…)