Copper: Rebound In USD Weighs
After an initial surge higher on Monday, Copper prices returned lower and consolidated over the week. Ahead of options declaration day on Tuesday Copper prices soared higher helped along by a weaker US Dollar.
Chinese data also came in strong during the week with Chinese exports and imports both seen rising over November reflecting a pickup in domestic and global demand. Chinese demand has been a big part of the picture for metals this year and whilst many analysts have continued to call for a reduction in demand, demand has remained firm and supported higher prices across the metals space. Chinese imports surged 6.7% over November in stark contrast to an expected fall of -1.9%.
Despite initial strength on the week prices ultimately fell back as the Dollar rebounded later in the week in response to the December ECB meeting. The ECB noted that they will extend their current QE programme beyond the current March 2017 end date until atleast December of next year, however, the bank also noted that they will scale back the size of their purchases from 80bn Euros per month to 60bln Euros per month. The news saw the Dollar Index immediately strengthening as the Euro cratered lower, subsequently weighing on commodities prices.
Traders now look ahead to the December FOMC meeting next week. Whilst markets are widely expecting the Fed to raise rates, it is not yet clear whether the Fed will give a Dovish hike which could ultimately provide support for commodities. For now markets remain cautious ahead of the meeting which is likely to be pivotal for the direction of both commodities and the US Dollar heading into next year.
The technical picture for the red metals points more to consolidation rather than exhausted bullish momentum. For now, prices have been capped again the post elections high though price is continuing to hold in the upper end of the range and continues to test the high watermark following Trump’s election. The next key resistance will be a test of the 2015 high and long term bearish trend line resistance around 2.944
Iron Ore: Fresh 27 Month Highs
Iron Ore prices exploded to a fresh 27 month high this week as better China data fuelled yet further upside in the material which is up over 90% of last December’s lows. The Steel Index noted in its monthly Iron Ore review that the surge in coking coal prices in China has seen a similar surge in demand for Iron Ore, specifically high Fe, low impurity ores.
However, many analysts are pointing to growing stockpiles of Iron ore in China which may ultimately cap the advance of price and turn the metal lower. Mysteel data shows that quayside inventory of Iron Ore is now at its highest level since 2014.
Following the breakout of the large inverse head and shoulders pattern in iron, prices have continues to surge higher with prices now trading to new 27 month highs. And showing little sign of slowing down.
Zinc: Profit Taking Continues
Similar to what we’ve seen with Copper prices this week, Zinc started the week strongly only to trade lower across the week as the US Dollar rebounded on the announcement of extended ECB stimulus. Having surged to fresh nine years highs last week, Zinc prices have since fallen back. The general driver of the decline has been profit taking among investors who have enjoyed a sizeable rally this year and are looking to square positions ahead of the FOMC next week which poses the risk of weighing on commodity prices should the Fed appear more Hawkish than anticipated.
The sell-off in Zinc since last week’s fresh nine years highs has now seen price fall back below the 2010 high which is a pivotal level for the metal. Bulls will be looking for price to move back above this level to signal fresh upside whilst bears will look to use this level as resistance.