September High Grade Copper futures finished higher on Thursday in a lackluster trade. Early in the session, technical factors helped drive the market lower, but short-covering fueled by U.S. economic data triggered an intraday rebound. Volume was low which could be a sign of trader indecision.
Earlier in the week, the market posted a daily closing price reversal top. This chart pattern was confirmed on Thursday, but the follow-through was weak and short-covering ensued. The initial cause of the break was concern over future demand from China and talk of the Fed beginning its tapering of monetary stimulus as early as September. This action would drive interest rates higher and make the dollar a more attractive investment. Since copper is dollar denominated, foreign demand could fall if the dollar is allowed to rally.
Since investors aren’t sure when the Fed will implement its plan to unwind its current stimulus, the market may become range bound over the near-term. Today’s better-than-expected durable goods report failed to excite traders. This may mean investors will hold the market in a range until the release of the latest U.S. jobs data on August 7.
Technically, the nearest resistance is a 50% level at 3.2045. This is followed by the reversal top at 3.2340. The break through the uptrending Gann angle at 3.1955 has put the market in a weak position. This could trigger a further decline into another uptrending Gann angle at 3.0955.
Based on the main range of 2.9855 to 3.2340, the retracement zone at 3.1098 to 3.0804 is the most likely downside target.
Look for a sideways to lower bias to develop as investors wait for more clarity regarding the Fed’s decision to begin cutting stimulus. The direction of the U.S. Dollar should also be watch closely. A weaker dollar will be bullish. A stronger dollar will likely trigger an acceleration to the downside.