September High Grade Copper futures had a volatile session on Tuesday. Initially the market rallied on the weaker U.S. Dollar, but investors decided to take profits on the move as they squared positions ahead of industrial data from China. This report is expected to reveal the current supply and demand outlook for the metal since China accounts for about 40% of the world’s copper demand.
The dollar is reacting to the possibility the sluggish U.S. economy will mean the Fed will refrain from tapering its monetary stimulus until later in the year. Reducing the stimulus will mean higher interest rates and greater interest in the dollar. A higher dollar could pressure copper prices since it will lead to lower demand from foreign buyers.
Traders are watching China because recent economic data has suggested the economy is slowing. Although the industrial report may indicate some slowing, the figures are not expected to show the economy is on the brink of recession.
Technical analysis of the daily copper chart suggests the market is range bound between a pair of 50% retracement levels at 3.2045 and 3.1353. There is a slight bias to the upside because of the higher-bottom, higher-top chart pattern, but momentum appears to have slowed as traders await the data from China.
A breakout over 3.2340 will resume the uptrend, but the market may run into resistance at 3.2459. The main trend will remain up on the daily chart until the swing bottom at 3.0365 is taken out with conviction.