{"id":58026,"date":"2022-12-20T09:00:57","date_gmt":"2022-12-20T14:00:57","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=58026"},"modified":"2022-12-19T15:36:35","modified_gmt":"2022-12-19T20:36:35","slug":"copper-fears-hawkish-fed","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2022\/12\/copper-fears-hawkish-fed\/","title":{"rendered":"Fed Fears Inflation, Copper Fears Hawkish Fed"},"content":{"rendered":"

Copper futures have closely followed the trajectory of the zigzag that was outlined this summer<\/a> in the post titled \u201cCopper Fears Recession\u201d<\/a>. Below is a copy of that monthly chart to refresh your memory.<\/p>\n

\"Copper<\/a>
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Source: TradingView<\/a><\/em><\/center><\/small><\/p>\n

The majority of readers bet that the price would remain above $3. Within the same month, the price reached a valley of $3.13 and subsequently recovered. This vote is still valid as the price hasn't crossed that handle yet. <\/p>\n

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In the next weekly chart update, we will examine the outlook further.\u00a0\u00a0 <\/p>\n

\"Copper<\/a>
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Source: TradingView<\/a><\/em><\/center><\/small><\/p>\n

This is a closer look at the second red leg down shown on a bigger time frame in the summer. When the first leg up within a bounce in copper futures was unfolding, it looked promising at the beginning. <\/p>\n

The hope has evaporated with the second leg up that has shaped a classic \u201cdead-cat bounce\u201d hitting only the minor 38.2% Fibonacci retracement level. It was close to touching the purple barrier of the moving average at the round level of 4, but failed. \u00a0\u00a0\u00a0 <\/p>\n

This consolidation after the AB part was called the \"BC\" segment, and chances are high that was it, especially after the Fed's Chair Powell revealed last week<\/a> that \"17 of the 19 [FOMC members] wrote down a peak rate of 5 percent or more, in the 5 range. So that's our best assessment today for what we think the peak rate will be.\u201d So it would seem another hike or two is in the pipeline. <\/p>\n

The Fed still fears inflation rather than recession. The copper futures market is a barometer of the economy, so it reacted immediately. After the Fed hiked its interest rate projection for 2023, the price lost 20 cents by the end of the week. \u00a0\u00a0\u00a0
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\nAccording to the RSI, it followed the consolidation path to retest the crucial 50 level. Now, both the price and the market turned south. <\/p>\n

The target for the CD segment equal to AB is located at $2.05 where the large red leg 2 is equal to the large red leg 1 in the first chart above. It is an amazing coincidence. Should the Fed throw the economy into recession, the price could fall into the abyss of 2008's Great Recession's valley at $1.25.<\/p>\n

The closest volume profile support is located at $3.6. The bigger one is located lower at $2.9 and the largest volume profile sits at $2.6. <\/p>\n

The nearest resistance level is the moving average and the 50% Fibonacci retracement level at $4-$4.1. A harder barrier sits at volume profile and 61.8% Fibonacci retracement level at $4.3.<\/p>\n

There is another chart that I didn\u2019t show you long ago. A strong distortion was spotted this time, so I want you to see it below.<\/p>\n

\"Copper<\/a>
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Source: TradingView<\/a><\/em><\/center><\/small><\/p>\n

Copper futures (orange) have a strong correlation with the AUDUSD currency pair (green). These two were in amazing sync for more than a decade from 2001 to 2016. The chain was then broken as copper futures showed a terrific gain while the Australian dollar continued to sink.<\/p>\n

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The divergence reached its peak last summer and is closing now, even as Ozzy dives further down. These days, the corresponding level for copper futures is at $1.75, less than half of the current price of $3.76. The distortion might be solved in the opposite direction as well with the price of AUDUSD reversing to the upside. <\/p>\n

However, the chances are low as the real interest rate differential is in favor of the US dollar by a wide margin.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0
\nPossibly we will see a repeat of 1989-2001 when the Ozzy dropped drastically to catch up with copper's low price. Copper may collapse this time to match a weak Australian dollar.\u00a0\u00a0\u00a0 <\/p>\n

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How deep could copper futures collapse?<\/strong><\/p>