After an early set-back on Friday, September High Grade Copper posted a higher close. The catalyst behind the rally was the weaker-than-expected U.S. Non-Farm Payrolls report. The report suggested a sluggish economy. This likely means the Fed will continue with its aggressive $85 billion per month monetary stimulus program.
With the Fed likely to continue to supply stimulus, interest rates fell, making the U.S. Dollar a less-than-attractive investment. Since copper is priced in dollars, a drop in the Greenback may lead to increased foreign demand. Speculators bought copper in anticipation of this increased demand.
Technically, the main trend is up on the daily chart. Last week’s new higher bottom suggests strong buying interest. Once the market chews through a cluster of Gann angles and a major 50% level at 3.2045, the trend could accelerate through the last main top at 3.2340, eventually reaching the Fibonacci level at 3.2549.
A drop in the dollar may have ignited this last rally, but it is going to take an improving economy in China to fuel the next rally. With China accounting for about 40% of the world’s demand for copper, next week’s trade balance report could set the tone for the month. The way the market has been trading, it seems as if investors are looking for a bullish report.