The price of cooper is said to be a sign of economic growth and weakness. Hence, it is nicknamed Dr. Copper because when the economy is weak, one just needs to look to “the Doctor” to see if it is getting better. It is used as a predicter of economic turning points. As China is a main user of the base metal, the value of the CHN tends to strengthen when copper is strong and tends to weaken when copper moves lower. After months of weakness in USD/CNH (stronger CNH), is Copper signaling a change ahead?
Copper
Since putting in a low of 1.9695 on March 19th when stock markets collapsed on fears of the coronavirus, copper has been on a one-way path higher and on October 27th, put in near term highs at 3.2164. On a longer timeframe, Copper has been forming an ascending triangle since mid-summer and price is diverging with the RSI, and indication it may be ready for a pullback in the next few weeks. Price is currently in a short-term symmetrical triangle . If price breaks above the October 27th level, watch the top trendline of the ascending wedge and the January 2018 highs near 3.318 where sellers will be waiting for a reversal.
Source: Tradingview, FOREX.com
USD/CNH
USD/CNH put in a double top on May 27th and has been moving lower since and an orderly channel. The target for the double top is the height of the top to the bottom of the formation, added to the breakdown point. In this case the target is near 6.5000. However, since early September, the currency pair has been diverging from the RSI and has stalled at the 1.618% Fibonacci retracement level from the lows of January to the May 27th highs, near 6.6127. Price has also broken through the bottom of the descending channel, only to fail and move back into the channel. Is USD/CNH ready to reverse and move higher?
Source: Tradingview, FOREX.com
Copper vs USD/CNH
On a daily chart of Copper vs USD/CNH, one can get a better picture of how the 2 assets are related. Traders can look for possible reversals from the previous mentioned levels (copper = 3.318, USD/CNH = 6.500). In copper, traders can look for a 100% retracement of the wedge, which is also the 38.2% Fibonacci retracement from the March lows to the (not yet hit) 3.3184 highs near 2.8047, which is also horizontal support (green). That would suggest a reversal in USH/CNH, and a move to the 38.2% Fibonacci retracement level from the May 27th highs to the (not yet hit) 6.5000 lows, near 6.7500. There is also horizontal resistance near that area (red).
Source: Tradingview, FOREX.com
Although there may be some room for Copper to move higher and USD/CNH to move lower, traders should be ready for a possible reversal. If one trades USD/CNH, watching Copper will give a better idea of when a change may be coming.
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