An easing of tensions caused by credit market problems in China helped give September Copper futures a boost on Tuesday. The market began to move higher and maintained a bullish tone throughout the trading session after a People’s Bank of China official said the central bank will guide rates to a “reasonable range”. This helped alleviate some of the concerns that the crisis was escalating.
The weaker U.S. Dollar also contributed to the rally. However, the market was able to maintain its strength late in the session when the dollar turned higher for the day. This could be a sign that investor sentiment is beginning to shift to the upside.
Technically, the market produced a potentially bullish closing price reversal bottom. This chart pattern typically triggers the start of a 2 to 3 day rally equal to at least 50% of the last major break. Recently, the market broke from 3.4125 to 2.9855, creating a retracement zone at 3.1990 to 3.2494. This zone is the potential upside target.
Since topping at 3.4125 on June 5, the market has walked down a Gann angle moving at a rate of .02 per day. This angle is at 3.1325. Taking out this angle with conviction could trigger the momentum needed to launch the market into the retracement zone.
If the cash crisis in China begins to escalate, then look for a sharply lower trade as this and the possibility the Fed will begin tapering its current asset buying spree are two events that could fuel another sell-off.