Copper, China, Covid, Rates, COT, Technical Outlook – Talking Points
- Copper prices are slightly lower in Asia-Pacific trade but last week’s gain holds
- China’s Covid-19 policy is critical to industrial metals as rate forecasts moderate
- Symmetrical Triangle breakout may resume after prices test former resistance
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Copper prices traded lower on Monday as the reality of China’s “Zero-Covid” policy weighed on the industrial metal’s outlook. On Friday, copper rose 7.5% to its highest level since late August as rumors of a policy shift in China caused a surge of buying across risk assets. While Covid cases rise across the country, developments are pointing to an eventual reopening, such as German expatriates being allowed access to the BioNTech vaccine.
However, no mRNA vaccines have been approved for China’s population, even though the shot is more effective than those currently being administered across the country. China saw over 7k new community cases of Covid on Monday, rising to near the highest levels since April. The current surge is forcing several cities to enact fresh lockdown measures.
The Foxconn plant in Zhengzhou, China, is expected to seriously impact the production of iPhones, according to a statement from Apple. Meanwhile, the labor shortages at the plant have increased, per a worker cited by the Financial Times. The fact that China is tamping down on some of its most lucrative segments of the economy shows strict adherence to its Covid policy, putting a near-term policy shift likely out of the question for now. Any indication of such a move remains an upside risk for prices.
Moreover, the Federal Reserve and other central banks are at or nearing peak hawkishness, according to market-based measures like overnight index swaps. That bodes well for industrial metals, although the threat of a recession remains. Given that global inventory levels remain low and prices are well off their yearly highs, copper prices are likely primed for a big move higher. It just needs a few key elements to take shape.
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Trader Positioning – COT
Speculators reduced their short bets on the metal by nearly 8k contracts for the week ending November 01, according to Friday’s Commitments of Traders report (COT). The CFTC data also showed a 1.2k increase in speculator long bets, which trimmed the net short position to -6.8k. Friday’s price surge likely pushed more shorts out of the market, which would be included in this Friday’s COT update.
Copper Daily Chart Versus Non-Commercial Longs/Shorts
Chart created with TradingView
Copper Technical Outlook
Prices surged above triangle resistance and the 100-day Simple Moving Average (SMA) on Friday. A retracement back to the triangle may see the former resistance level turn support, which isn’t uncommon following an initial break. The Relative Strength Index (RSI) remains positioned above its midpoint in a positive sign for the short-term outlook.
Copper Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
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