Copper Climbs On China Manufacturing PMI, Crude Oil Eyes $105

Talking Points

• Copper climbs as China manufacturing data eases demand concerns
• Return to risk and bullish inventories report lifts crude prices
• Gold and silver tug-of-war may continue while USD slumber persists

Copper prices are firmer in Asian trading following a significantly better-than-anticipated Chinese manufacturing PMI reading earlier in the session. Similarly crude oil is edging higher alongside gains in equity futures following a dovish set of FOMC Meeting Minutes, which has spurred a return to risk-sensitive assets. Finally, gold and silver may continue to tread well-worn ranges as a weaker greenback an offsets ebbing safe-haven demand for the precious metals.

Copper Climbs As China PMI Eases Demand Concerns

The strongest reading in 5 months for a key gauge of economic activity in the Chinese economy has given copper prices a lift in Asian trading. The HSBC Flash Manufacturing PMI for May reflected a rise to 49.7, beating economist’s expectations for a reading of 48.1. While the improvement is an encouraging sign for the Chinese economy, a figure below 50 signals the manufacturing sector remains in contractionary territory.

On balance Chinese economic data has been soft of-late, which includes the drop in Retail Sales and Industrial Production figures for April to multi-year lows. This suggests that that we’re far from seeing a re-acceleration of growth for the Asian giant, and if data fails to improve further, renewed concerns over the country’s appetite for commodities could reinvigorate the copper bears.

Return To Risk Benefits Crude Prices

Crude oil posted its largest daily percentage gain since early April as traders returned to risk-sensitive assets following a dovish tone in the Fed’s April Meeting Minutes. Policy makers’ expectations for inflation to remain subdued over the near-term suggests rates may be left near zero for a considerable time after the end of quantitative easing. Further speculation that the central may retain its highly accommodative stance could lend further support to the growth-sensitive commodities including crude oil over the near-term.

An additional lift to WTI prices was given by a reported drop in total crude inventory levels by the Department of Energy. Total stocks fell by 7,226K barrels, the most since January 10th, while supplies at Cushing declined for the 6th consecutive week. The drawdown in inventories suggests some of the excess supply in the US oil market is finally being mopped up. However, with the rate of production rising further, a substantial pick-up in demand may be needed to offset new supply becoming available.

Gold and Silver Await The Return of The Greenback

Gold and silver traders continue their tug-of-war as the precious metals waver between key technical levels. While a weaker greenback has afforded gold some breathing room, easing geopolitical tensions have likely sapped safe-haven demand for the alternative asset. Over the coming weeks a de-escalation of conflict in Eastern Europe will likely prompt a further unwinding of fear-driven positioning in gold, which could lead the commodity lower.

However, the nail in the coffin for the yellow metal ultimately rests on a recovery in the greenback, which has been left uninspired of-late by a timid stance from Fed officials on the prospect of a rate hike. Despite continued signs of progress in the US labor market a more aggressive “Taper” appears unlikely at this stage based on recent “Fed speak”. This suggests the upcoming US Initial Jobless Claims figures (details on the economic calendar here) may face a relatively muted reaction from the US dollar and gold, barring a significant deviation from expectations.

CRUDE OIL TECHNICAL ANALYSIS

WTI has cleared notable resistance at 102.30 as several bullish technical signals suggest a push towards 105.00 may be on the cards. Building upside momentum reflected by the Rate of Change Indicator, as well as prices holding above the 20 SMA suggests the emergence of a short-term uptrend. However, traders should be mindful that the ATR indicates volatility remains low, which generally favors range-trading strategies.

Crude Oil: Break of 102.30 Puts 105.00 On The Cards

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS

Gold continues to drift between $1,277 and $1,305, which may afford short-term range-trading opportunities on either side of the narrow corridor. A lack of momentum signaled by the Rate of Change indicator alongside low volatility levels (reflected by the ATR) and several Doji formations suggest the consolidation may continue.

The DailyFX Speculative Sentiment Index suggests a mixed bias for gold based on trader positioning.

Gold: Dojis Highlight Trader Indecision As Range Persists

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS

The Bearish Engulfing candlestick pattern on the daily chart for silver is warning of a pullback for the precious metal to critical support at $19.00. A bounce to the resistance zone near $19.70 would be seen as a new opportunity to enter shorts at this stage.

Silver: Eyes The Critical $19.00 Handle

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS

Copper’s recent run higher has stalled with prices becoming compressed between $3.120 and $3.170. At this stage the ascending trend channel remains intact, which affords a bullish technical bias. A break above $3.170 would open up the next notable level of resistance at $3.300.

Copper: Bulls Lose Steam Near Resistance

Daily Chart - Created Using FXCM Marketscope 2.0

PALLADIUM TECHNICAL ANALYSIS

Palladium has bounced off trendline support as the uptrend for the precious metal remains in force. Clearance of $826 opens up the August 2011 high near $847.

Palladium: Prices Push Off Trendline Support

Daily Chart - Created Using FXCM Marketscope 2.0

PLATINUM TECHNICAL ANALYSIS

Platinum prices are teasing at a push higher following a retest of the descending on the daily. However, notable selling pressure remains at the $1,486 mark, clearance of the key resistance level would open the September 2013 high at $1,535. Of additional note, the Shooting Star formation that has recently emerged on the daily needs to see confirmation from an ensuing down-period before suggesting a correction may be on the cards.

Platinum: At A Critical Juncture Near $1,486

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Currency Analyst, DailyFX

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