By IFCMarkets

Copper has been declining since mid-July on slowing Chinese growth concerns. Recent data showed manufacturing sector contracted in June while growth in services sector slowed. Polls indicate industrial production and retail sales are expected to moderate in July. Will the copper continue declining?

Copper has been falling on concerns growth in China, world’s biggest consumer of copper, is slowing. The Caixin Services PMI declined to 51.7 in July from 52.7 in June as growth slowed in services sector and employment fell for the first time in four months. The Manufacturing PMI came in slightly below expectations at 49.9 compared to 50.0 in June, indicating a contraction in manufacturing sector as output and new orders declined and export orders fell further. China’s top planner called on Thursday for the central bank to cut interest rates and bank reserve requirements “at the appropriate time” in order to stimulate the economy. Growth in construction in recent months was the result of increased government spending on infrastructure projects which increased demand for metals. Recent poll by Reuters indicates urban fixed asset investment likely expanded 8.8% in January-July, a fresh 16-year low, declining from 9.0% in January-June. Further fiscal measures will be needed to boost growth in the remaining five months with private investment growth declining to record lows. As to supply, Rio Tinto confirmed it plans to expand copper output even after it reported a 47% slump in first-half profit to its weakest in 12 years. And Japan’s Mitsui said the Caserones copper mine in Chile was currently running at around 80% utilization and the miner aimed to further improve its competitiveness. Rising supply as demand declines will put further downward pressure on copper. The fixed asset investment data together with the industrial production and retail sales for July will come out on Thursday, August 11 with the growth in industrial production and retail sales expected to moderate.

COPPER:D1 has been declining in daily timeframe since July 13 after hitting three month high following the external trade report which showed China’s imports and exports fell in June. The price has breached below both the 200-day and 50-day moving averages MA(200) and MA(50). The Parabolic indicator still gives a buy signal. The Donchian channel is tilted downward, indicating downtrend. The MACD indicator is above the signal line and the gap is falling, which is a bearish signal. The RSI oscillator has crossed below the 50 level which is a bearish signal. We believe the bearish momentum will continue and we can go short right away. The stop loss can be placed below the last fractal high at 2.2501. After placing the order, the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. 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 taken into account.

Market Analysis provided by IFCMarkets