Copper On Rising Trend But Forming A Rising Wedge

The dollar was rebounding Wednesday morning in Europe with gains of over 0.1% vs SEK, NOK, NZD, AUD and GBP. It continued to ease against both CAD and JPY, however. EUR/USD was virtually unchanged from its European opening. In the absence of any market-affecting indicators, the US budget settlement overnight was the main factor affecting sentiment in the markets. European stock markets were almost all higher even though Asian markets closed lower (except for Thailand). That would explain the movement in USD/JPY but it doesn’t explain why NZD and AUD are lower as they have been correlated with stock market movements. AUD’s correlation with the Eurostoxx index has been coming down recently; the 52-week weekly correlation peaked at 0.73 back in September and is now 0.65, still about the highest of all major currency pairs (surpassed only by -0.66% for USD/CAD). AUD saw a fall in the Westpac Consumer Confidence index for December and tomorrow’s unemployment data are expected to show a rise in unemployment in November. As for NZD, the Reserve Bank of New Zealand’s meeting tomorrow is likely to result in at least some comments about how the NZD is overvalued. After the September meeting, Gov. Wheeler said that “the exchange rate remains high. A lower rate would reduce headwinds for the tradables sector and support export industries.” The biggest mover of the morning was copper, which gained on both improved sentiment towards base metals generally and a fall in LME stockpiles to below 400k tones more specifically.

• Copper has been forming higher highs and higher lows since the beginning of December on the one hour chart. However, the uptrend line and the return line are converging, raising the possibility of a rising wedge formation. A rising wedge has bearish implications most of the time. This would be confirmed by a dip below the trend line and a break below the support at 3.2787 (S1). On the other hand, if the longs overcome the previous high of 3.3092 (R2), I would expect further advance towards next resistance areas. Our momentum studies confirm the mixed picture of the metal. The MACD oscillator seems ready to cross above its signal line, while the RSI is following a downward path. At the moment, I consider the uptrend to be valid, since the price is trading above the both moving averages with the 50-hour one providing reliable support to the lows of the trend.

• Support: 3.2787 (S1), 3.2550 (S2), 3.2366 (S3)

• Resistance: 3.3092 (R1), 3.3246 (R2), 3.3522 (R3)

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