Copper pared most of its gains from the Asian trading session today, remaining in a consolidation phase after surging 3.4% last week – the biggest weekly rally since the week ended July 14. The bright outlook for the red metal was largely driven by signs of recovery in the Chinese economy, and an improving U.S housing market. However, robust output from China capped gains.
Confidence among U.S. home builders surged to an 11-month high in September, prompted by renewed interest in home purchases. According to data released on Monday from the National Association of Home Builders/Wells Fargo, the gauge for builder sentiment increased to 65 from a downwardly revised reading of 59 in July, indicating an improving housing market. In its monthly report, the NAHB noted that builder sentiment is being bolstered by the presence of “more serious buyers.”
In China, average new home prices in 70 major cities rose 9.2 percent in August from a year earlier, marking an improvement compared in the pace of growth compared to the 7.9 percent growth rate in July. The data on the housing market was reported by the National Statistics Bureau on Monday. A robust recovery in China’s property market, powered by a flurry of government stimulus measures, has boosted demand for construction material like steel and copper, as well as consumer goods such as furniture and home appliances.
According to JP Morgan “Orders for low voltage copper cables used in real estate construction have increased and production at major copper wire rod companies has stabilized.” Mounting domestic demand in China caused copper imports to increase while exports have fallen, thus helping reduce the copper surplus outside of China.
On the supply side, data released on Monday showed that the world’s top producer of refined copper boosted output to the highest level in at least six months. According to data from the National Bureau of Statistics, China’s production jumped to 743,000 metric tons in August from 722,000 tons in July, well above the figures of 663,000 tons in the same period last year since domestic smelters expanded capacity as a result of favorable margins. Data from Bloomberg reported Chinese smelting margins being at $105 for each ton of refined copper in July and August – the highest since early 2015.
Hedge funds and money managers reduced their net short positions in COMEX copper in the week ended Sept. 13, US Commodity Futures Trading Commission data showed on Friday.
Fig: COPPER H4 Technical Chart
Copper has been stuck in a range between the resistance at 2.1640 and the support at 2.1400 since last Wednesday. The price is swinging around the 20-period moving average and seems to lack the momentum to break out of the channel. A low ADX index that has fallen to 19.93 indicates equal strength between buyers and sellers but the parabolic sar band which has changed its direction and crossed below the price action suggests a breakout towards the upside.
Trade suggestion
Buy Digital Call Option from 2.1650 to 2.1770 valid until 20:00 GMT September 22, 2016
