Short covering boosts copper

Copper is up 0.4% as traders close out their short positions after last week’s selloff.

This short-covering activity has pushed the price of the red metal up to 295 cents per pound. Last week copper lost over 4.8%, suffering its worst-performing week in 11 months, but the financial markets do not move in straight lines and it is not surprising that the metal is higher today. Last week’s selloff was triggered by weak economic data from China, when declining exports and industrial production confirmed traders’ suspicions that the country is slowing down.

While Chinese economic data continues to slide, the situation in its credit market also continues to deteriorate. The People’s Bank of China (PBoC) has been forced to intervene and ensure the lines of credit between banks run smoothly. The more the PBoC loosens monetary policy, the more speculation will ramp up that China is depending too much on credit.

In the short term, we could see copper head towards the 200-hour moving average level of 304 cents per pound. If the foreign direct investment figures from China due for release overnight disappoint, we could see copper slip below the 294 cents per pound mark.

High Grade Copper chart

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