Weekly Commodities Wrap

Copper Prices Fight Off Stronger USD To Rally on Firm China Data

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Gold

The price of the yellow metal weakened over the course of this week’s trading as attention remained with the rampant US Dollar recovery that saw further gains this week.  The main focus this week which, as expected, saw the central bank keeping policy unchanged at current levels. After raising rates last time around traders were keen to receive the bank’s latest outlook and economic assessment.

In terms of the statement itself, the Fed refrained from making any significant changes though did acknowledge the slowdown in economic activity over Q1, especially the weakness in household spending. However, the committee did express greater confidence in inflation hitting the bank’s 2% target suggesting that the bank remains on course for further gradual rate increases as was reaffirmed in this statement.  Referring to inflation the Fed said that it had “moved close” to its 2% target which marks a distinct upgrade from the earlier assessment of inflation continuing “to run below 2%”.

Copper Prices Fight Off Stronger USD 1

Gold prices have been battling it out this week following the break of the large contracting triangle pattern which has framed price action. While the triangle was broken to the downside, key structural support at the 1296.65 level remains intact suggesting that the market is not yet fully behind a bearish move and we may see some rotation higher as the recent range continues.

Silver

Once again, this week, silver prices demonstrated a breakdown in their correlation with gold as silver managed to rebound strongly off the week’s lows to turn positive. With not much else having changed fundamentally it seems that Silver prices simply enjoyed higher demand on the back of the FOMC statement which, although broadly positive, wasn’t wildly hawkish and so allowed for some short covering in silver which remains broadly range bound.

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The downside break of the contracting triangle pattern in silver may prove to be a false one as this weekly close looks to be printing a strong bullish reversal candle which will have traders on alert for a potential rally next week. The key level to watch to the topside will be the 17.4575 level which has been a key level over the last ear and a half.

 

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Copper

After initially trading lower on the week, Copper prices fight off stronger USD, staging a strong recovery mid-week as the latest data showed a strong rebound in China’s manufacturing sector over April.  The Caixin/Markit Manufacturing PMI rose to 51.1 in April, up from a four-month low of 51 in March, firmly beating the forecast 50.9. As China is the biggest global consumer of copper, any uptick in economic activity usually spells good news for the red metal which experiences increased demand. Indeed, the data was strong enough to help copper trade higher despite the firmer US Dollar.

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Copper prices remain trapped in the 2.966 – 3.271 range that has framed price action over 2018 so far. Although copper has been finding support at a retest of the broken 2015 high, traders have not been able to get price back above the broken bullish trend line from late 2016 lows which has proved a sticking point now for several weeks. The current formation suggests a potential head and shoulders patter which would indicate deeper downside below the 2.966 level if broken.

Iron

Iron ore prices surged higher this week as steel prices rocketed higher. Following a four day trading break, iron prices exploded higher on news that the latest inventory data shows iron ore stocks have fallen back by around 500,000 units over the last week, suggesting that demand is hotting up. Improvements in Chinese manufacturing data have also added support for the metal

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While still well off their 2018 highs, Iron ore prices look to have put in a bottom now around mid March and have been broadly trending higher since. A break of the $69 level will be needed now to encourage momentum players into the market to support further upside. While below this level the chance of another rollover remains prominent.

 

 

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