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Global Macro: Copper Priced in Yen Shows Improving Economy

NEW YORK (TheStreet) -- Copper priced in yen is showing strength as the global economic recovery picks up steam.

Copper is a barometer of economic health because of its industrial use. When the global economy is strong and investment is increasing, more industrial production is needed, which increases the demand for copper.

Over the past few years, however, stimulus has clouded copper's ability to convey true economic strength. Investors see every positive release of economic data as a reason to tighten monetary policy. That causes U.S. dollar strength and commodities priced in dollar terms to experience selling pressure. But when copper is adjusted to be priced in yen, the new pair measures economic health versus a safe-haven currency.

The Japanese currency is bid higher during times of market fear. When market volatility increases, investors sell other currencies in favor of the yen.

Therefore, when copper is taken out of dollar terms, it allows for more clarity in analyzing the metal. The chart below shows the relationship of iPath DJ-UBS Copper TR Sub-Idx ETN (JJC) over CurrencyShares Japanese Yen Trust (FXY). The pair has traded range-bound over the past few months, but has recently started to trend higher.

This price action represents the mixed bag of economic data released during the summer and fall, as well as the government wrangling in the U.S. In recent weeks, however, global economic data have improved.

The pair has yet to break out of its multi-month consolidation pattern; nevertheless, it remains in an uptrend. Expect the indicator to continue to track the economic recovery higher, even as normal copper prices are distorted by worries about tapering by the Federal Reserve.

At the time of publication, the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: JJC, FXY 
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. He takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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