Shanghai copper fell by its 5 percent daily limit on Tuesday, as a rise in the dollar to a 2-1/2 year high sent London futures scurrying almost 5 percent lower after sharp overnight gains. A short flurry of enthusiasm after a surprise rise in new US home sales in September on Monday gave way to pessimism about demand once more and to gains in the dollar which hit a 2-1/2 year high against the euro ahead of central bank meetings.
Sentiment towards the euro weakened after European Central Bank President Jean-Claude Trichet said the bank could cut rates at its next meeting on November 6. The likelihood of rate cuts by the ECB outweighed expectations that the US Federal Reserve would cut the fed funds rate - now at 1.50 percent - by at least 50 basis points at its two-day meeting starting on Tuesday. "The markets are tracking currencies for the moment," a trader in Shanghai said.
"Prices are very dollar-sensitive and the market is moving on US data and events - the big one will be the election in a week's time." LME aluminium fell 1.4 percent to $2,010, making it the strongest performer on the exchange on Tuesday and technical analyst Daryl Guppy of Gupptraders.com suggested the market would trade between long term support at $2,000 and resistance at $2,300.
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