AUD/USD, copper dragged lower with sentiment, higher US dollar

It has been a turbulent 24 hours for markets with Wall Street indices extending losses, USD rebounding back above its 200-day MA, copper plunging to a 3-month low and the VIX hitting a 3-month high. And there are a mixture of drivers behind the moves.

The uncertainty over Biden’s stance to run, who could replace him and the increasing likelihood that we’re in for Trump round two is making its mark on sentiment. And whilst there were not high hopes of Beijing unveiling strong reforms at their Third Plenum, they managed to disappoint low expectations.

Keeping in mind that retail sales and growth figures fell short of the mark ahead of the big event, the lack of specific reforms being announced weighed heavily on copper prices, seeing futures fall nearly 3% during the worst day in five weeks.

Copper and AUD/USD track sentiment lower

Copper futures have fallen -18% since the YTD high set in May. The decline is currently within its third leg lower, and bearish momentum has accelerated to suggest further losses may await. However, Tuesday’s low found support around the 61.8% Fibonacci level, high-volume node (HVN) and held above the 200-day EMA. The daily RSI (2) is also oversold to suggest a little mean reversion higher could be on the cards over the near term.

Despite the potential for a bounce, the core view is for copper prices to fall to $4 near the 78.6% Fibonacci level and HVN, which could be confirmed with a break below the 200-day EMA (4.236).

We’d likely need to see sentiment improve overall before assuming a decent recovery for copper prices, but it is something for bears to at least consider around these levels as they may prefer to sell into strength. And with AUD/USD sharing a strong correlation with copper prices on the 1-hour chart this past week, lower copper likely points to a weaker Aussie over the near term.

AUD/USD technical analysis

If copper prices fall further under the current regime, then in all likelihood AUD/USD will also. However, AUD/USD is hugging 67c ahead of China’s open, so perhaps there is the potential for a bounce here to (assuming copper prices can).

0.6689 is a key level for bulls to defend, as a break beneath it assumes a retest of the 50-day EMA at 0.6668. We should keep in mind that AUD/USD has not seen a daily close beneath the 50-day EMA since June 7, and even that marked a swing low. Therefore, we may need to see prices break below 0.6650 to assume a much deeper pullback. And that assumes Wall Street indices have extended their losses and copper prices are indeed headed for $4.

And with Trump, potential trade wars and a Democratic Party in disarray, it is not an impossible scenario.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.