Copper Bullish Continuation: Q2 Top Trading Opportunities

Copper Set Up for Bullish Continuation

Copper has witnessed phenomenal price appreciation since March 2020 when the pandemic surged, resulting in worldwide lockdowns. The metal has been supported by unprecedented monetary policy, ultra-low interest rates and more importantly, low or negative real yields.

Such an environment makes non-interest yielding investments like copper, gold, silver and platinum more attractive as the potential for price appreciation remains.

However, as governments attempt to turn the corner in 2021 through the rollout of Covid-19 vaccines, hope is on the horizon. Global GDP is forecast to rise to 5.5% in 2021 according to the IMF while lockdown restrictions ease. Adding to this, US manufacturing PMI figures indicate a strong recovery in factory output – with copper making up a vital components in electronics, autos and aerospace.

US Manufacturing PMI Figures

Source: TradingEconomics

China Remains the Dominant Player in the Copper Market

Chinese GDP is forecasted to rise by around 7% in 2021 according to the IMF study. This bodes well for the copper market considering that China is the biggest copper consumer – making up roughly 50% of global consumption in previous years.

Copper Technical Set up

While the landscape remains bullish, copper prices may be showing signs of fatigue. The most glaring: the sell-off at the 161.8% extension of the Fib retracement drawn from 2018 high to the 2020 low. The 161.8% is widely perceived as a possible capitulation level for extended bullish runs.

Copper Weekly Chart

Chart prepared by Richard Snow, IG Charts

Further signs of a bullish slowdown can be seen from the long upper wick at the all-time high; followed by the most recent red weekly candle which is yet to be completed, as of this writing.

Copper bulls may be eyeing a retracement towards the steeper trendline support at point ‘a’ before rejoining the long term bullish trend. In the event of a deeper sell-off, a bounce off the solid trendline upon renewed bullish momentum at point ‘b’ may be considered. However, should the sell-off persist and break below 7640, the bullish narrative would need to be reassessed.

Copper Weekly Chart (Zoomed in)

Chart prepared by Richard Snow, IG Charts