Thursday, April 10, 2014

Copper Slips On China Data While Gold Eyes $1,320 As USD Dips

By David de Ferranti

Talking Points

  • FOMC Minutes stir crude oil bulls as prices crack $103.00
  • Gold and silver advancing in Asian trading as USD continues declines
  • Copper dips on disappointing China trade figures, with CPI data looming

Crude oil cleared the $103.00 handle while gold soared above $1,310 following the release of the FOMC March Meeting Minutes, which took more dovish tone than traders had been anticipating. Meanwhile another disappointing set of Chinese trade balance figures have weighed on the copper price in Asian trading. With a light US economic calendar in the session ahead, the fate of the precious metals and crude oil likely hangs on whether investor risk-appetite can be sustained.

Fed Crushes USD, Sending Precious Metals Soaring

Expectations of a more timely rate hike by the US Federal Reserve were quashed by the release of the central bank’s March Meeting Minutes, which sent US 10 year yields and the USD plunging. The fall in the reserve currency has continued in Asian trading today which has helped gold advance on a key technical level at $1,320.

To help illustrate the reaction to the Minutes and the relationship between gold, silver, and the US Dollar, the multi-compare indicator is used below. It shows the percentage changes for each of the instruments from the outset of US trading on Wednesday.

Copper-Slips-On-China-Data-While-Gold-Eyes-1320-As-USD-Dips_body_Picture_6.png, Copper Slips On China Data While Gold Eyes $1,320 As USD Dips

15 Minute Chart Created Using FXCM MarketScope 2.0

Crude Oil Pushes Higher As Sentiment Improves

The dovish tone from the Fed also helped fuel gains for the risk-sensitive commodities including copper and crude oil which rose alongside the S&P 500. However, copper’s rise proved-short lived, as another disappointing set of Chinese export growth figures released in Asian Trading suppressed demand for the base metal. Upcoming inflation figures from the Tiger economy will be in focus for copper traders over the coming 24 hours. A upside surprise to the CPI reading may dampen hopes for new stimulus from the People’s Bank of China, which would likely bode ill for the commodity.

Risk-Trends To Offer Commodities Their Bearings

General investor risk-appetitite continues to be of key concern for the precious metals as well as crude oil. While the prospect of a less hawkish Fed has stirred the bulls for now, a light US economic docket in the session ahead leads us to question what could sustain investor optimism. This is of particular note given that US equity indices, which act as a proxy for risk-appetite, are edging back towards their record highs, which could prompt some caution amongst investors.

Absent a complete collapse in investor confidence, a souring of sentiment may actually stand to weaken the US Dollar, given a drive to US Treasuries would push down US 10 year yields (see relationship below) . This would likely benefit gold and silver and could prompt a break of key technical levels for the precious metals.

Copper-Slips-On-China-Data-While-Gold-Eyes-1320-As-USD-Dips_body_Picture_5.png, Copper Slips On China Data While Gold Eyes $1,320 As USD Dips


Crude oil prices have broken above the triangle formation on the daily, which helps offer a bullish technical bias for the commodity. A push above resistance at the 102.30 mark may help WTI extend its recent gains towards its 2014 high near 105.00. However, the ATR continues to reflect low levels of volatility for crude oil, which generally does not favor trading breakout opportunities.

Crude Oil: Break of 102.30 Opens 105.00

Copper-Slips-On-China-Data-While-Gold-Eyes-1320-As-USD-Dips_body_Picture_4.png, Copper Slips On China Data While Gold Eyes $1,320 As USD Dips

Daily Chart - Created Using FXCM Marketscope 2.0


Gold is shifting towards a short-term uptrend on the daily as signaled by prices edging above the 20 SMA and a move towards the zero level on the Rate of Change indicator. The bounce in the gold price was foreshadowed by the Morning Star formation that arose near key support at $1,277. In light of the bullish technical signals for the commodity a break above the $1,320 handle would favor longs with a target offered by the next noteworthy resistance at $1,351.

The DailyFX Speculative Sentiment Index suggests a mixed bias for gold based on trader positioning.

Gold: Eyes $1,320 Handle

Copper-Slips-On-China-Data-While-Gold-Eyes-1320-As-USD-Dips_body_Picture_3.png, Copper Slips On China Data While Gold Eyes $1,320 As USD Dips

Daily Chart - Created Using FXCM Marketscope 2.0


Silver continues to keep traders in suspense with prices remaining tightly compressed between $19.60 and $20.00. The recent consolidation suggests the short-term downtrend may be set to shift, which is reinforced by the rate of change indicator revealing waning downside momentum. The potential for an upside break above $20.00 makes new short positions look less attractive.

Silver: Traders In Suspense Near $20.00 Handle

Copper-Slips-On-China-Data-While-Gold-Eyes-1320-As-USD-Dips_body_Picture_2.png, Copper Slips On China Data While Gold Eyes $1,320 As USD Dips

Daily Chart - Created Using FXCM Marketscope 2.0


The uptrend for copper is already showing signs of capitulation as the commodity struggles above the critical $3.00 handle. A Hanging Man pattern on the daily offers a bearish reversal signal and is warning of a potential correction, which precludes new long positions at this stage.

Copper: Bears Threaten Push Below $3.00 Handle

Copper-Slips-On-China-Data-While-Gold-Eyes-1320-As-USD-Dips_body_Picture_1.png, Copper Slips On China Data While Gold Eyes $1,320 As USD Dips

Daily Chart - Created Using FXCM Marketscope 2.0

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