September Comex High Grade Copper futures are trading flat after a two-day setback drove the market into a one-week low on Wednesday. The catalyst behind the selling was a drop in demand for the dollar-denominated futures contract after a strong rally by the U.S. Dollar.
Today’s early support is being provided by weakness in the U.S. Dollar. The Greenback retreated from its high after the minutes from the Federal Reserve’s June monetary policy minutes clouded the outlook for the pace of future interest rate hikes.
On Wednesday, the Fed minutes said that policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rate hikes. If the Fed backs off from its plan to raise rates at least one more time before the end of the year then the dollar should weaken. This could lead to increased demand for copper.
Traders were also monitoring the situation in North Korea. On Wednesday, the U.S. cautioned that it was ready to use force if needed to stop North Korea’s nuclear missile program, but said it preferred global diplomatic action against Pyongyang.
Technical Analysis
The main trend is up according to the daily swing chart. A trade through $2.7185 will signal a resumption of the uptrend.
The resistance area is a retracement zone at $2.6675 to $2.7105. This zone has been providing resistance since the June 30 top at $2.7185.
The short-term range is $2.5490 to $2.7185. Its retracement zone at $2.6340 to $2.6135 is the primary downside target. Since the main trend is up, we could see buyers show up on the initial test of this zone.
Forecast
Based on the current price at $2.6540, the direction of the market the rest of the session is likely to be determined by trader reaction to the steep downtrending angle at $2.6585.
A sustained move under $2.6585 will signal the presence of sellers. This could create the downside momentum needed to challenge the 50% level at $2.6340, the uptrending angle at $2.6190 and the Fibonacci level at $2.6135. All of these levels are capable of stopping the sell-off and drawing the attention of buyers.
A sustained move over $2.6585 will indicate the presence of buyers. This could trigger a fast rally into the main 50% level at $2.6675. Overtaking this level could trigger an acceleration to the upside with the next target a resistance cluster at $2.6885 to $2.6890.
If counter-trend sellers come in to stop the rally on a test of $2.6885 to $2.6890 then this will signal the market is moving lower. A failure at this zone will form a secondary lower top.