Iron ore selloff brings rare long-entry opportunity
Chinese warnings have hit iron ore prices, but could this retracement provide a rare buying opportunity for bulls?
Iron ore weakness comes as China requests price stability
The past fortnight has seen a sharp pullback in commodity prices, with iron ore in particular currently down over 23% from its 12 May peak. That comes after a period of increased pressure from the Chinese government to stop price gouging, collusion, and irregularities that have pushed up prices. Yesterday saw China’s National Development and Reform Commission (NDRC) push back on so-called “excessive speculation” once again, stating that they would take a “zero tolerance” approach to monopolistic behaviour. That signals the potential for heightened inspections and investigations to ensure commodity firms do not engage in manipulative actions. From a layman's perspective, it is difficult to know how much of this recent rise in prices is attributable simply to shifting demand-supply dynamics, and what might involve manipulation. Looking at import statistics (albeit for 2019), we can see why traders are worried about the potential implications on price. After-all, China accounts for almost 70% of the world’s imports of iron ore.
Nonetheless, this latest pullback does appear to provide a potential buying opportunity given the ongoing uptrend in play here. The daily chart highlights how this current pullback is just the latest in a host of periods of weakness over the course of the past year. Each time we see price run heavily away from trendline support, we are greeted with a period of consolidation or weakness to bring price back down towards that ascending line. Once again we are faced with a move into trendline support, with the 76.4% Fibonacci level also coming into play. With that in mind, this looks like a very interesting potential long entry in a bid to take advantage of this bull market. A break below 894 support would be required to negate that bullish view.
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