Copper Rally Corrodes as Economic Data Disappoints
Fundamentals
Copper bulls were hoping for positive economic data out of the U.S. last week, in order to give the recent rally off 8-month lows some fresh momentum. However, their hopes were dashed this past Thursday, as government data failed to confirm an economic rebound. For starters, the Labor Department's weekly initial jobless claims report showed a gain of 12,000, to 472,000 last week, which is well above the 6,000 decline most analysts were expecting. In addition, the Federal Reserve Bank of Philadelphia general economic index for June fell sharply to a reading of 8, vs. 21.4 in May, which signals slower growth in manufacturing in the Pennsylvania, New Jersey and Delaware region than was anticipated. On top of this disappointing data, traders reported that copper imports into China were being delayed, which could signal Chinese buyers had adequate supplies of the" red metal" and demand may slow going into the summer. Copper inventories at London Metal Exchange (LME) approved warehouses increased for the first time in several weeks this past Thursday, jumping by 1,025 tons to stand at 460,175 tons. Recent weakness in the U.S. Dollar -- especially vs. the Euro-- may have added support to the recent gains in Copper prices, but with few concrete solutions to the European debit crisis being put forth, any movement downward in the Euro could spark further selling in Copper futures, as well as commodity markets in general.
Trading Ideas
July Copper was only able to briefly move above the 20-day moving average before aggressive selling came into the market and sent prices once again below $3 per pound. Given the illiquid nature of options on Copper futures, traders looking for Copper prices to fall would most likely need to look to the futures market to establish a short position. For risk management purposes, those traders short lead month July Copper may wish to consider placing a protective buy-stop above the recent high of 3.0490 in case the trade moves against them.
Technicals
Looking at the daily chart for July Copper, we notice the downtrend formed from the mid-April highs of 3.6910 remains in full force, despite the recent rally attempt. Last Thursday's sell-off all but shut-down any short-term bullish momentum, with the 14-day RSI failing to even crack the 50 level. Although a possible attempt at a test of the recent lows near the 2.7200 area looks likely, prices may actually become range bound given the mixed economic data we have seen lately. Support for July Copper is seen at the June 7th low of 2.7200, with resistance at the June 16th high of 3.0490.
Mike Zarembski, Senior Commodity Analyst
