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