Medium term
Trade view / 29 August 2016 at 1:55 GMT

Selling copper on USD resurgence

Trader / Saxo Capital Markets Pte Ltd
Instrument: HGZ6
Price target:
Market price:

HG copper futures closed the week at 207.85, extending their declines since the end of July 2016.
Over the weekend we had Janet Yellen speaking at the Jackson Hole conference where she talked up the possibility of rate hikes this year. The probability of a hike by year end currently stands at 64.7% from 7.7% two months ago. 

This morning the USD index (DXY) has opened higher at 95.56. With the possibility of a resurgence in USD strength this week, this may well be the catalyst that copper needs to continue its bearish descent. 

Copper since 2016 has formed a symmetrical triangle at the end of a downtrend, with a series of lower highs and higher lows. A symmetrical triangle is more often than not a continuation pattern, which means we should see copper lower from here should the trendline support of the symmetrical triangle be broken.  A potential breakdown of its symmetrical triangle is in the works: 

Copper Triangle
The trend following and momentum indicator, the MACD, has crossed over its signal line, the centerline, and we now also have a stochastics bear cross:

Copper Indicators

The wide triangle, coupled with the narrow daily trading range (~3.00/day), sets the trade up for a very attractive risk reward ratio of 5.69x:

Copper Target

Entry: Sell HGZ6 (Copper - Dec 2016) @ ~ 206.

Stop: We base our stop on 2 x ATR*, i.e. 206 + 2(3)= 212
*ATR = Average True Range, a measure of the degree of price volatility.

Target: 171.85, being widest distance of the symmetrical triangle measured and applied to the breakout point.

Time Frame: 2-3 months.

— Edited by Susan McDonald

Non-independent investment research disclaimer applies. Read more
SvsG SvsG
Hi Mr. Liu, what's your current view on this trade view after the latest NFP data and recent surge in short selling of the copper.Do you have any updates.
Edmund Liu Edmund Liu
Hi SvsG, thank you for your post. Well after the poor US ISM Manufacturing PMI and NFP numbers last week, it seems the USD rally has fizzled for now. Copper is consolidating around the 208 levels while we await further USD direction. As such, we can still place a sell stop for copper @ 206 to catch the Copper decline if and when the USD rally continues.
SvsG SvsG
Thanks for your comment.


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