“`html
Initial selling pressure in Copper was triggered by disappointing Chinese manufacturing Purchasing Managers’ Index (PMIs). However, the subsequent decline has been significantly amplified by selling activity from Commodity Trading Advisors (CTAs) in a market characterized by reduced liquidity. According to Daniel Ghali, Senior Commodity Strategist at TDS, algorithmic trading models are poised to further reduce their Copper holdings, potentially exceeding -7% of their maximum allocation. This confluence of factors is creating a challenging environment for Copper prices.
Systematic Sellers Poised to Intensify Copper’s Downward Trajectory
“Considering China’s prominent role as a recent driver of buying activity, the anticipated reduction in market liquidity due to upcoming holidays poses a substantial risk to Copper prices. CTAs are positioned to liquidate their Copper holdings under a wide range of price scenarios over the coming trading sessions,” Ghali explains. This suggests that even moderate price weakness could trigger further selling, exacerbating the existing downward pressure. The market’s sensitivity to these systematic selling programs is heightened by the absence of robust buying interest.
“Copper prices now face a critical juncture where even maintaining current levels is necessary to prevent further liquidation. Even if prices remain unchanged, CTAs will be compelled to unwind their remaining long positions. Given the prevailing liquidity constraints, this could translate into a notable decline in prices. Furthermore, a significant downward price movement could trigger large-scale short positions, potentially reaching a substantial -45% of CTAs’ maximum allowable size in this scenario.” This highlights the potential for a significant and rapid decline in Copper prices if negative momentum persists. Market participants should closely monitor Chinese economic data and CTA trading activity for indications of future price movements. The combination of weak economic signals and algorithmic selling pressure presents a considerable downside risk for Copper in the near term.
“`
