Copper and USD/CHF have a high negative correlation!

Copper is often looked at for signs of strength in the world economy. If price is moving higher, the economy is said to be strengthening. If it is turning lower, the economy is said to be weakening. Hence, the industrial commodity has earned the nickname “Dr. Copper”, as it gauges the health of the economy. Copper reached a high of 5.0372 on March 7^th and quickly reversed. By July 15^th the pair had fallen all the way down to the 61.8% Fibonacci retracement level from the lows of March 2020 to the highs near 3.1413. Since then, copper has bounced to a confluence of resistance at the 38.2% Fibonacci retracement level from the June 3^rd highs to the July 15^th lows and horizontal resistance dating to January 2021 between 3.678 and 3.740. Will the resistance hold? If so, horizontal support is at the lows from August 4^th at 3.4153, then the spike lows from July 15^th at 3.1290. However, if copper continues to move higher, the next resistance level is the 50% retracement level from the previously mentioned timeframe, then a confluence of resistance at the 61.8% Fibonacci retracement level and horizontal resistance between 4.0178 and 4.0343.

Source: Tradingview, Stone X

Notice the correlation coefficient between Copper and USD/CHF in the bottom panel of the chart above. The current correlation is -0.88 on the daily timeframe. A reading below -0.80 is considered a strong negative correlation. This means that on the daily timeframe, when copper moves in one direction, USD/CHF moves in the opposite direction. Traders who don’t have access to trade copper can use USD/CHF as a proxy if this negative relationship holds.

On a daily timeframe, USD/CHF has been moving lower since making a double top near 1.0050/60 on June 15^th. The neckline for the double top is today’s high at 0.9545. The next resistance level is 0.9652. If USD/CHF trades above this level, the double top will be invalidated. Above there, horizontal resistance isn’t until 0.9886 and then the psychological round number resistance at 1.0000. If the resistance holds, the first level of support is at the August 11^th lows near 0.9371, then an upward sloping trendline dating to January 2021 near 0.9315. Below there, the pair can fall all the way to the lows of January 14^th near 0.9095, just ahead of the price target of the double top pattern at 0.9035.

Source: Tradingview, Stone X

Copper has tended to be a leading indicator for the economy. When the industrial metal moves higher, the economy is said to be doing well. When it sells off, the economy is said to be weaker. USD/CHF has a high negative correlation with Copper. Therefore, as long as the correlation holds, traders who don’t have access to trade copper can use USD/CHF as a proxy. The next move in the direction of copper could determine the next move for USD/CHF!

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.