September High Grade Copper Futures rose despite concerns about Friday’s U.S. Non-Farm Payrolls report, China’s weakening economy, and political/economic concerns in the Euro Zone.
The U.S. Non-Farm Payrolls report on Friday could set the tone for the rest of the month. Investors will be watching this report closely because employment is one of the major components the Fed will use to make its decision on whether to begin tapering its asset buying program.
If the Fed decides to reduce the amount of stimulus, then interest rates should rise, making the U.S. Dollar a more attractive investment. This is likely to put downside pressure on copper.
China is important to watch because the country accounts for at least 40% of the world’s demand for copper. A slowdown in its economy will likely mean a drop in demand. This would increase supply and lower prices.
Finally, the Euro Zone also accounts for a large amount of demand. If economic problems flare up again in the region then governments may tighten spending further, causing a drop in demand for copper. Earlier this week, political uncertainty in Portugal pressured the Euro because it often leads to economic problems especially if new leadership doesn’t agree with current austerity issues.
Greece was also in the news on concerns about debt. The country is in the process of privatizing its debt and reforming its private sector. Both processes have stalled, prompting the country to consider more reforms that could further weaken the economy.
Technically, September High Grade Copper rallied after attempts to hold prices lower failed. With prices technically oversold on the daily chart, it seemed like just a matter of time before the buying would overcome the selling. After forming a closing price reversal bottom at 2.9855, a huge rally was launched when traders took out 3.0915.
This type of chart formation typically leads to a quick 2 to 3 day rally of at least 50% of the last break. Based on the main range of 3.4125 to 2.9855, the next upside target is 3.1990 to 3.2494. A rally into this zone should attract fresh selling pressure.
This week’s rally has helped to alleviate some of the selling pressure. A strong jobs report on Friday will likely mean the renewal of the recent selling pressure especially since the market has retraced nearly 50% of the last break.