Learn to Trade – Macro-Commodity Overview 23rd April
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 a firming up of the USD which has weighed on other major commodity markets also.
Thoughts from the trading floor
The technical outlook for the market favours the bulls currently. Despite moving lower, initially on the back of macro-economic news flows, the market has stabilised above the $346.65 level. Technical oscillators now point the market being oversold on the daily charts. This has enabled medium term longs in the market to hold their positions as the correction from overbought conditions has not broken through the significant levels to force them out. Bulls will look for a bounce back through the 355.00 level in order to reassert immediate term bullish momentum. This should then see the market retest recent high prints at the 368.00 level. Bears will be looking to force a move below the 346.56. This should serve to shake out fresh buyers form the market. Although major daily support around the 329.00-332.15 area should provide significant support and will need to be breached in order to change the short-term outlook for the market to bearish.
The recent days has seen some major currency commodities stall in their incessant advance higher. The Aussie Dollar, the most closely linked currency to commodities closely tied with China, has held major weekly resistance around the 0.9400 handle. This has also served to cap the rise in the industrial metals. Any deterioration of the currency may serve to keep the copper market under-pressure, which could aid bears in forcing out weak recent longs.
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. The issues surrounding the Euro-Zone peripherals can only get worse, even if Greece gets its entire bailout money. Bears will see these fiscal issues hurting Global recovery, eventually causing a double dip.
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.
Tags: bear, Bond Futures, bull, bund futures, China, Chinese GDP, Comex, copper, FTSE, futex, futures, learn to trade, Macro, market profile
