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After a 7-day decline, September Copper rebounded with a strong rally on Tuesday. Copper like other risky assets rose sharply higher after the U.S. Federal Reserve Open Market Committee announced that interest rates would remain near zero until at least mid-2013.
For the past week, the copper market has been at the mercy of outside markets such as equities and currencies. When investor sentiment shifted to a risk-off mentality, copper along with other base metals, declined while traders sought refuge in the U.S. Dollar, Gold and Treasury markets.
The relatively cheap price for copper is likely to draw the attention of China; however, if it remains on a path to cool its economy then prices are likely to rise slowly. Some of this was exhibited on Tuesday when at times, it appeared that traders were approaching the long side of the market with caution.
Technically, the week-long .7220 decline put the market in an extremely oversold position. The low price became unattractive to short-traders who were more than willing to cover their positions once the Fed made its announcement and equity markets began to rise late in the trading session.
Tuesday’s daily closing price reversal bottom is a strong sign that a short-term low has been reached. Wednesday’s overnight session produced a follow-through rally, confirming the reversal bottom. Based on the main range of 4.5400 to 3.8180, the market could retrace to 4.1790 – 4.2642 over the next 2 to 3 days.
The short-term outlook suggests that the one day range of 3.8180 to 4.0730 combined with the limited follow-through could lead to a near-term break to 3.9455 – 3.9154. If buyers step in following a test of this zone, then a secondary higher bottom may be formed, leading to the start of a rally into 4.1790 to 4.2642.
