Silver, XAG/USD, Copper, Fiscal Stimulus Negotiations, US Presidential Election – Talking Points:
- The decision by President Trump to abruptly cease Congressional stimulus negotiations may weigh on commodity prices.
- However, the incumbent President continues to trail his Democratic challenger in the polls which may discount his recent remarks.
- Silver poised to move lower as price carves out Bear Flag continuation pattern.
- Copper gearing up for a rebound higher as key support remains intact.
Commodity Prices in Peril as Congressional Stimulus Talks Grind to a Halt
Donald Trump’s unexpected decision to pull the plug on fiscal stimulus negotiations could drastically undermine copper and silver prices in the near-term, as the President tweeted “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business”.
Trump added that instead of continuing talks with House Speaker Nancy Pelosi he has “asked Senate Majority Leader Mitch McConnell not to delay, but to instead focus full time on approving my outstanding nominee to the United States Supreme Court, Amy Coney Barrett”.
The President’s unwillingness to continue talks appeared to dismiss Federal Reserve Chairman Jerome Powell’s earlier comments stressing that “the expansion is still far from complete [and] at this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery creating unnecessary hardship”.
Given that small business revenue continues to hover 22.4% lower than pre-crisis levels and continuing jobless claims remain almost two times higher than the peak seen in the 2008 global financial crisis, the absence of much-needed fiscal stimulus may markedly sour market sentiment and ignite the haven-associated US Dollar’s resurgence.
However, with Mr Trump rapidly losing ground against Democratic nominee Joe Biden in the polls and only 27 days until the US Presidential Election, the market may begin to discount the incumbent President’s remarks.
In fact, there is a distinct possibility that investors could begin to price in a potential Biden presidency, which is expected to bring with it substantial fiscal stimulus if the Senate flips to a Democratic majority.
Therefore, although metal prices may slide lower in the short-term, further widening of the gap between Mr Trump and Mr Biden could firm market sentiment and possibly ignite a resumption of silver and copper’s respective uptrends extending from the March doldrums.
Data Source – RealClearPolitics, Bloomberg
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Silver Price Daily Chart – Bear Flag in Play?
Silver prices look poised to extend their retreat from the yearly high set in August, as price carves out a Bear Flag continuation pattern just above the 100-day moving average (22.34) after collapsing through Symmetrical Triangle support on September 21.
With price tracking below the trend-defining 50-DMA (20.68) and the RSI struggling to clamber back above its neutral midpoint, the path of least resistance seems to be lower.
A daily close below the tentative uptrend extending from the September low (21.66) could trigger a more extensive correction, with a break below psychological support at the 22.00 level needed to validate the bearish continuation pattern and bring the July 15 swing-high into focus (19.48).
Conversely, a break back above the July 28 daily close (24.37) would probably invalidate bearish potential and open a path for price to retest the yearly high (29.86).
Silver prices daily chart created using TradingView
Copper Prices Daily Chart – 50-DMA Limiting Potential Upside
Copper prices could be gearing up to rebound higher in the coming days, despite falling over 5.5% on the first trading day of October and sliding as much as 9.2% from the yearly high set just two weeks ago.
With price perched constructively above key support at the 38.2% Fibonacci (2.8165) and the slope of the 100-DMA and 200-DMA notably steepening, the path of least resistance seems skewed to the topside.
However, a retest of the monthly low could be in the offing if the ductile metal slides back below the 23.6% Fibonacci (2.8840), with a close below the 2.8000 mark probably igniting a push to test the 50% Fibonacci (2.7620).
That being said, an extension of the rebound from the monthly low (2.8345) looks to be the more likely outcome, with a daily close above psychological resistance at the 3.0000 mark needed to carve a path to retest the yearly high (3.1040).
Copper futures (HG) daily chart created using TradingView
— Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss
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