Crude Oil Carnage Spreads to Copper Created on Thursday, 15 January 2015 07:39 Hits: 0 Copper Slides to Multi-Year Lows as World Bank Cuts Global Growth Forecast Copper tumbled in overnight trading, currently trading -5.81% lower after the World Bank downgraded global growth forecasts amidst a weakening outlook. Copper is suffering from two distinct problems including massive oversupply coupled with the fallout from the growing Chinese commodity scandal. Years of low interest rates fueled massive borrowing to fund mine investment and production expansion from the globes biggest producers. China’s copper scandal is only growing in scale as lenders race to find copper that was pledged against loans and financing vehicles. A supply glut amid a slide in demand is seeing copper prices plummet, exacerbating problems in the mining industry already suffering from falling prices. Equities tumbled on renewed risk aversion as yesterday proved one of the most volatile sessions in recent memory. The Chicago Board Options Exchange VIX Index, a measure of volatility for the S&P 500, rose 4.90% in yesterday to close at 20.56 as a renewed round of risk aversion impacts equity valuations. The decline in stock benchmarks carried over into the Asian session with the Nikkei 225 diving -1.71% and the Hong Kong Hang Seng trending -0.43% lower. The Shanghai Composite was also not immune, dropping -0.40% as weakness spreads from Asia to the European session. Although the Dollar continues to pullback, an interesting divergence is starting to manifest as traders shift to safety. Losses in USDJPY are seeing investors shift from hunting for yield to demanding quality in the form of haven assets like the Yen, Franc, and Dollar. While USDJPY remains one of the most crowded trades, this is likely a shakeout move as analyst forecasts put the USDJPY pair in the range of 125.00-130.00 in the coming months. However, any change to the global outlook that sees a renewed period of risk aversion as risks rise from Russia to Greece, will see JPY gain further in-line with moves higher in CHF. USDCHF Horizontal Range Trading Opportunity Even though the dollar has shown amazing resilience to the increasingly disappointing global economic outlook, safe haven flows and the prospect of higher rates have fueled tremendous gains. The Swiss Franc however is starting to benefit from renewed global weakness as the nation’s status as a safe haven sees inflows intensify. The strengthening of the Franc comes at a time when the Yen is also strengthening against peers as fears of another downturn see investors pile into quality assets over assets with higher yields. In the meantime, USDCHF is likely to trend sideways within the horizontal range between 1.0217 on the upside and 1.0118 on the downside. Any break above or below should be treated as a breakout trade with reward set at 60-70 pips and exit strategies to be set at above-mentioned former support and resistance levels.
Posted on: Thu, 15 Jan 2015 07:52:51 +0000
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