United States Recovery Drives Copper Prices Higher

As exports and real estate lag in China the North American economy is expanding. Europe may be sliding into a recession tied to severe austerity measures. However, the United States recovery drives copper prices higher according to the commodity news. As United States manufacturing expands, so does the demand for copper and prices have risen to about $4 a pound. But, what does this have to do with Forex you might ask? Successful Forex trading relies upon a clear view of fundamentals and close attention to market sentiment. With this in mind let’s look at just what has driven copper prices higher. Copper futures, after all, are denominated on the NYMEX in dollars.

What is Going on in the World of Copper?

Stocks of copper have gone down recently due to increasing demand. The increasingly stronger United States recovery drives copper prices higher. On the other hand the Chinese real estate market is in its fifth month of contraction and many expect the deflation of the Chinese real estate bubble to continue. Chinese exports to Europe are down as the European economy deals with its debt dilemma by enforce austerity measures almost certain to bring about a generalized recession. With fewer buildings being built and being stocked with fewer appliances as well as with fewer exports the demand for copper is going down in China. In trading an Asian currency decline, traders will keep an eye on the picture in China. As the United States recovery drives copper prices higher we must remember that the dollar fell recently against a basket of other currencies. Thus, the rise in copper prices is in part due to better business in North America and a weakening dollar.

If the US Economy is Getting Better Why Is the Dollar Weaker?

The United States is coping with the recession by printing money. The US Federal Reserve Chairman, Ben Bernanke, is considered by many to be the preeminent expert on the causes of the Great Depression. What was going to be a bad recession got worse in the early 1930’s when the USA tightened credit instead of loosening it and when it started a trade war. At the time many viewed the Weimar Republic (German) experience as the main risk. The Weimar Republic simply kept printing money until it required a million or so Deutschmarks to buy a loaf of bread. However, if we fast forward to the current era, roughly $7 Trillion in equity disappeared during the 2008 market crash and its aftermath. Thus the US Federal Reserve has worked to keep credit flowing and inject capital into the US economy. It has been buying US Treasuries to keep interest rates low and it has been generally printing money. As we see that the United States recovery drives copper prices higher it would appear that the Fed policy has had a degree of success. But, there comes a point at which the large number of US dollars floating around reduces the value of those dollars. Thus, while the United States recovery drives copper prices higher it is partly due to the reduced value of that same dollar. Whether it is the US dollar versus oil or against other commodities a Fed policy of printing money will stimulate the economy but eventually make things more expensive.

What is the Point for the Forex Trader?

We see the Chinese real estate market decline and the fact that Chinese exports are leveling off. Forex traders may assume from this that the Yuan it not going to rise continually against the rest of the currencies of the world. As the US, and Europe, and the Chinese as well print money to keep their economies going we may see little variation in Forex currency rates but we may see that commodities become more valuable as denominated in any and all currencies. To the extent that the USA devalues its currency it will become more competitive in the export market. That, over time, could help bring the dollar back to its former dominance.