IFC Markets - Analytics

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    Technical Analysis #C-COPPER : 2015-05-14

    Anticipating the end of consolidation phase

    Copper prices have been falling the last four years with decreasing copper demand as world economic growth slows down. Over the weekend China cut the interest rate quarter of percentage point to provide additional support for its economy in order to maintain the 7 % annual growth rate. This is a bullish development for copper, which will gain further support once US economy accelerates. At the same time production costs have fallen with stronger dollar and lower oil prices. International Copper Study Group forecasts that copper production in 2015 will increase by about 4% compared with 2014 and reach about 23.4 M tonnes, while copper usage is expected to increase by only 0.6%. Thus supply surpluses are expected to persist this year and the fundamental outlook for copper is bearish. In the short to medium term the price is expected to rise in response to supply disruptions and increased seasonal demand, but we expect the downtrend to resume after these retracements end.


    After falling for the last four years copper prices have started rising since the beginning of 2015. On May 5 the price reached the maximum level this year to date at $2.9537 per pound. It has been consolidating since then, which is confirmed also by the RSI-Bars. There is no clear indication whether the uptrend movement will continue or the price will pull back. The previous session ended with a candlestick with small body in the middle and long upper and lower shadows, signifying indecision between bulls and bears. RSI-Bars are located in overbought area, while the Parabolic indicator shows continuation of uptrend. The breach of the upper Donchian channel and the last fractal high at 2.9537 will indicate continuation of the uptrend. We don’t exclude also the possibility of reversal of the uptrend and resumption of bullish momentum after the price breaches the last fractal low at 2.8862 and closes below it. Let the market choose the price movement scenario. Two pending orders can be placed: when one of them is activated, the other can be canceled, since the market has chosen the direction. After pending order placing, the stop loss is to be moved every day to the next fractal high (short position) or fractal low (long position), following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.


    Position Sell
    Sell stop below 2.8862
    Stop loss above 2.9537


    Position Buy
    Buy stop above 2.9537
    Stop loss below 2.8862

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