Copper turns red as China concerns mount

The situation is escalating, and people don’t want to be caught offside with the weekend fast approaching.

China

The yuan fell first and now copper has given up its earlier gains on the session. Oil prices have also sold off from earlier highs. Will indices follow next? The losses come for some of these markets as concerns intensify over China.

So far, we have seen community lockdowns as Covid cases hit record highs. The situation is escalating, and people don’t want to be caught offside with the weekend fast approaching. At the pace things are escalating in China, I would expect to see tighter restrictions. Clearly, this could hurt economic activity and that’s why we are seeing some markets react they way they have.

The yuan’s sell-off was also partly driven by news the PBOC has decided to cut banks' reserve requirement ratio by 25 bps.

But do watch other markets, in particular oil and copper, as the world’s second largest may be forced to further tighten its Covid curbs. Cases have risen to levels last seen in April, when Shanghai was put in a stringent lockdown. Although China relaxed some restrictions, its zero covid policy means the threat of more growth-choking lockdowns are there. This is going to hold back the yuan and potentially risk assets across the board.

Copper’s bearish reversal has helped to form an (uncompleted) inverted hammer on the daily chart, which comes after a few days of relative strength. The fact that last week saw the rally come to a complete reversal when the sellers defended the 200-day average and key resistance near 3.9300 to 4.000, the longer-term path of least resistance remains to the downside. So, watch out below.

Copper

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account