Comex High Grade Copper Price Futures (HG) Technical Analysis – Pressing 2-Year High on Strong Fund Buying

September Comex High Grade Copper futures closed higher for the week after taking out a multi-year high.  Early in the week, it looked like the market had the momentum behind it to scream to the upside, but after taking out its May 5, 2015 top at $2.9375, the rally stalled at $2.9550 and the market edged sideways the rest of the week.

Weaker-than-expected economic data from China and the geopolitical uncertainty over North Korea may have helped limited gains, however, a weaker U.S. Dollar helped underpin the dollar-denominated futures contract.

Copper prices reached their highest level in more than two years on the back of a similar rally in aluminum prices. This current price surge began dramatically around July 25, when London Metal Exchange (LME) three-month copper punched through $6,200, the top end of a long-standing trading range. This helped all futures contracts rise.

The news trigger for the technical breakout was a proposal by Chinese authorities to prohibit imports of lower-grade scrap from the end of next year. This news was good enough to get the commodity and hedge funds actively involved.

In London, for example, the funds increased their buying since mid-July by around 450,000 tonnes. In the U.S., both money manager long positions and open interest hit all-time record highs.

Traders aren’t sure how long the rally will last because the news that ignited the rally is not expected to be a game changing event. This may mean investors will shift their interest to the U.S. Dollar. Theoretically, a weaker dollar will make dollar-denominated copper a more attractive investment to foreign traders.

Friday’s price action strongly indicates the U.S. Dollar/copper demand connection. The market may be overbought on a short-term basis which makes it ripe for a near-term sell-off. The move will be designed to shake the weaker longs out of the market. However, the fundamentals are there for higher prices, if the Chinese economy continues to demand copper.

The situation between the United States and North Korea should also continue to be monitored. If it continues to raise concerns then copper may top out with investors moving money in to less-risky assets like gold and the Japanese Yen.

Technical Analysis

The main trend is up according to the weekly swing chart. A trade through last week’s high at $2.9550 will signal a resumption of the uptrend. Holding above the former two-year high at $2.9375 will also indicate the presence of strong buyers.

If a rally through $2.9550 can gain traction then the next major target is the long-term Fibonacci level at $3.0305.

If sellers increase their pressure then we could see a test of the main 50% level at $2.8305. Buyers need to come in to defend this level or we could see a more pronounced sell-off over the near-term.