AUD/USD, iron ore, copper, silver wilt as China’s stimulus bazooka turns out to be a peashooter

• AUD/USD, copper, iron ore and silver were hit hard by China’s latest stimulus measures
• Despite the volatility seen on Tuesday, price continue to respect known technical levels in many of these markets
• Chinese stocks are likely to be influential on movements in these markets on Wednesday, especially in the early parts of the session

Overview

Industrial commodities such as iron ore, copper and silver, along with the Australian dollar, were among the markets hardest hit by China’s latest stimulus announcement, falling heavily as it became clear the objective of policymakers is to stablise growth, not see it accelerate meaningfully as seen in other state interventions of the past. The “bazooka” many headlines and bullish narratives were based upon ended up being yet another peashooter.

Despite the volatility seen on Tuesday, it’s remarkable that in many instances the price action in these markets remained highly respectful of prior levels. With another volatile session likely on Wednesday, it suggests these can used to build trade setups around depending on how the price action evolves.

Having seen multiple retail-driven Chinese stock market frenzies over my career, I can say with confidence that directional movements for commodities and Aussie dollar are likely to be driven by the swings in Chinese equities, especially early in the mainland session.

AUD/USD showing signs of basing?

AUD/USD has shed close to two cents from the highs of Monday last week, succumbing to a stronger US dollar and, more recently, disappointment surrounding China’s latest stimulus measures.

While signals from MACD and RSI (14) remain bearish, it’s notable the pair bounced from the 50-day moving average on Tuesday, a level the price has often respected in the past. With minor horizontal located at .6733, it provides a decent base for long setups for those traders looking for some form of squeeze, allowing for stops to be placed below Tuesday’s low targeting a move back towards former downtrend resistance located around .6830.

If the price were to fall and close below the 50DMA, it would also create a bearish setup, allowing for a stop to be set above the level looking for a push down towards .66857 or even the 200DMA.

Selling rallies favoured in silver

After printing fresh 12-year highs on Friday, the price action in silver has turned bearish recently with the price breaking uptrend support with conviction on Tuesday. With the bearish signal from divergence between RSI (14) and price now confirmed by MACD which has crossed over from above, the bias has now switched to selling rallies rather than buying dips.

Tuesday’s rout stalled at $30.16, a known level that acted as both resistance and support during periods this year. That’s the first downside level of note. Below, the 50-day moving average and horizontal support around $29.62, along with $29.10, are the next on the radar.

On the topside, $32.20 has been like poison to bullish thrusts this year, tested on nine separate occasions without being able to close above the level. Below, the former uptrend located around $32.10 is another level of note.

Iron ore bubble pops

Iron ore futures bought in heavily to the super stimulus speculation, surging through several key levels over the past fortnight, aided by likely short covering given how bearish sentiment was before the move began.

But the price action on Tuesday suggests the bears may soon return, with a huge intraday reversal suggesting directional risks are once again skewing lower. In overnight trade, it’s notable the price has fallen through $104.45, a level that acted as both support and resistance earlier in the year.

If the break sticks, you could sell with a stop above the level for protection against reversal. Downside targets include $99.95 and the important 50-day moving average.

On the topside, $106.65 is worth watching given the price found support there last week. However, the 200DMA is far more important technically, as is $114 which the price reversed from hard when breached on Tuesday.

Copper price action was telling

Copper was perhaps the strongest tell that hopes for Chinese fiscal stimulus “bazooka” were misplaced, unable to extend its initial rally last week despite huge gains in Chinese stock index futures over the same period.

With no major stimulus splurge forthcoming, the price sliced through uptrend support with ease on Tuesday, pointing to the risk of further downside ahead with momentum indicators such as RSI (14) and MACD also generating bearish signals.

$4.541 has acted as pivot point for price throughout this year, often tested but rarely crossed. That’s your first topside level of note. The price also struggled above $4.67 last week, suggesting that too may be a suitable level to initiate shorts if the price were to get back there.

On the downside, $4.398, the 50DMA, 200DMA and $4.25 are potential bearish targets.

-- Written by David Scutt

Follow David on Twitter @scutty