Copper: Hedge Funds Hold Record Longs

Copper prices are fast approaching the local 2016 highs after surging higher this week, fuelled by US Dollar weakness. The growing threat of protectionism stemming from trade policies being enacted by President Trump is weighing sharply on the Dollar as investor fears grow. Markets are concerned that trade restrictions will escalate into full blow trading conflicts with key partners which could damage US growth and hurt the economy.

The US dollar was dealt a further blow this week as the Fed kept rates unchanged at their February FOMC meeting, delivering a fairly muted statement which did little to encourage bulls. Although the Fed pointed to improved business conditions and consumer sentiment they noted, as they did in December, that they are still awaiting further details about Trump’s proposed fiscal expenditure before making any rate moves. Trump has promised to slash corporate taxes and pump $550 billion into infrastructure. Until such time that further details are delivered on these plans, the Fed is likely to remain in wait and see mode, fuelling a further unwind of USD longs, which should support commodity price across the board.

The latest CFTC positioning data shows that hedge funds are holding record long positions in the red metal, at a fresh high of 9,100 lots which equates to around $6 billion worth of copper. Disruption fears linked to Indonesia have increased bullish speculation in the commodity, which looks set to continue where 2016 left off.  On Wednesday it was reported that workers at the Escondida copper mine voted against the mine’s pay offer, opening the route for strikes in the coming days. This production disruption is set to further boost copper prices.

Copper prices are sitting right against the 2016 highs, looking poised for a break. The key level above market will be a test of the bearish trend line from 2011 highs against the 2015 high and mid-2014 lows.

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