by Jim Williams
Copper prices fell to the lowest level in more than a week as a broadly stronger U.S. dollar weighed, while China’s government attempts to shore up its economy limited losses.
On Monday, policymakers in China announced steps to relax housing taxes and lending rules in an effort to support sliding house prices that have threatened economic growth.
Comex copper prices have been well-supported in recent weeks amid speculation demand for the industrial metal will increase due to accommodative central bank policies in the U.S., Europe and China.
The red metal is on track to post a gain of more than 2% in March.
tED contributor Jesse Colombo provides an amazing analysis on copper. “The past couple weeks were very interesting for copper because of the Dollar’s sharp pullback – thanks to the Fed’s Janet Yellen’s comments at the FOMC meeting two weeks ago,” starts Colombo. “The Dollar’s pullback caused copper to spike and touch its $2.90 resistance level (it’s really a zone between $2.90 and $3.00/lb) and it appears to have bumped its head for now.
“It’s still within that channel pattern too. If it breaks back above $2.90-$3.00, then that would be a bullish signal, but if copper can’t break that resistance zone and then breaks below its uptrend channel, that would be a bearish signal.”
“As you can see in the chart above, the commercial hedgers or smart money, have been using the rally to greatly cut back their long position, while the large traders or dumb money have been buying this rally, which makes me skeptical of it,” Colombo continues. “Commodities often plunge after commercial hedgers cut bullish positions so rapidly.
“How the Dollar acts from here is likely to influence copper’s next move. If the Dollar can bounce/rally off those support lines I drew, then it will most likely be bearish for copper. If, however, the Dollar experiences a convincing breakdown below those supports, then copper may rebound.”
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