Copper, Daily
Three markets that have a fundamental link between them are AUDUSD, Copper and Chinese Stock market. As my regular readers remember I have been warning about Hang Seng index topping as there was a rumour that institutions had been liquidating their Chinese stock positions. Today there is no doubt about this rumour being true as we have seen the recent strong decline. However, now that this market has declined so much so quickly it makes sense to assume that Hang Seng is close to levels where downside is limited and market can move higher. This is evidenced by multi asset class analysis as well. Both Copper and AUDUSD have attracted buyers yesterday and today.
The price of Copper has been falling since my last report in May and hit an important support level at 2.40 day before yesterday. This is a level that has historically been able to send the price of copper significantly higher and yesterday’s reaction together with Hang Seng (closed up 5.46%) was promising. Stochastics pointed higher even though price made a lower low and yesterday’s candle was a pin bar. Price has moved above 2.55 resistance today and after such a long decline I expect copper will eventually move close to the upper end of the declining weekly trend channel. Resistance levels are likely to cause fluctuations but eventually we should see the price of copper reaching 2.77 resistance level.
AUDUSD, Daily
AUDUSD started to move lower at the same time with the price of Copper turning lower and has now moved below 0.7533 support. For the last two days the pair has moved sideways which signals balance between buyers and sellers. Stochastics is oversold and at the time of writing the pair is reacting higher from an intraday support level. This move could turn into a swing trade with a target at 0.7533 resistance. Yesterday’s low was only 100 pips away from a major support level at 0.7266. This support was created in 2009 when price penetrated this resistance and moved since then significantly higher. Nearest resistance at 0.7533 is likely going to be penetrated as price action in Copper points to higher prices. Should my projection for Copper prices turn out to be correct and there is no central bank action that disturbs the AUDUSD correlation with Copper, the red metal targets at 0.7740 and 0.7840 could be feasible.
Hang Seng Composite index, Weekly
Chinese shares saw an 8% intraday drop yesterday as investors panicked and exited stocks that many of them had bought with borrowed money at much higher prices. Index found support below a support level at 3124. Market panic creates buying opportunities as after such a sizeable drop in prices stocks are likely to attract buyers at or near support levels. Today’s daily close was above previous day’s high so we therefore have significant show of strength after long fall in prices. This suggests that index is bouncing higher from levels that have significant buying interest.
Conclusion
With Copper and Chinese Stocks reacting strongly higher from a significant support level it is likely that AUDUSD will follow and move higher over the coming days. Chinese stock market has been manipulated by the central bank on the way up and then again on the way down. Therefore Chinese stock indices might be prone to excessive behaviour and therefore lack the indicative value that Copper market has. Following these three markets together we should be able to gain better understanding on market sentiment and judge price behaviour better. We will pay close attention to price action in all of these asset classes but especially when they trade near support and resistance levels.
Janne Muta
Chief Market Analyst
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
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