Copper Analysis: Inflection Point Incoming, Major Support Test Looms

Copper, China, Australian Dollar - Talking Points:

• Copper under pressure of late as Chinese growth concerns dominate headlines
• AUD/USD tracking copper lower, falling to 0.7327 during Monday trade
• Commodities remain in focus as the Delta variant puts re-openings at risk

Copper has come under pressure as of late while the Chinese economy has shown signs of slowing down in recent months. A test of an ascending trendline from the March 2020 low may be just around the corner around 4.28/29, with a breach of the line yet to materialize. Headwinds remain for the red metal as data from China hints at slowing demand for commodities across the board. While these concerns permeated briefly into global equity markets, commodities have been hit especially hard as lockdowns and restrictions put a halt to Chinese economic activity. July customs data indicated weakening demand for imports of oil, iron, and copper; all of which have moved lower recently.

Copper also remains at risk from most developments in regard to the Delta Covid variant, as case counts continue to tick higher globally. Headwinds also remain in the form of “peak growth” concerns, as China’s recovery begins to normalize and the Federal Reserve begins to prepare to taper asset purchases. A global slowdown may limit near-term demand for copper and other commodities, therefore potentially limiting upside. Further releases from China’s metal reserves, coupled with US Dollar strength, may exacerbate the recent bearish sentiment surrounding copper. Given the uncertainty over what the rest of 2021 may look like, market participants ought to remain cautious about bull and bear theses.

Copper Daily Chart

Chart provided by TradingView

Copper prices appear to be limited in the near-term to the boundaries of the triangle pattern that has been in formation since May. Following a test of the upper trendline in July, the price has weakened to test the ascending trendline. This is where support may be found in the 4.28/29 area just below current levels, and that may be an appetizing point for bulls given copper’s inability to break below this key support level. In the event of a near-term bounce, resistance may come in the form of the 50-day moving average around the 4.37 area. Much of copper’s near-term direction may be tied to economic conditions of China, which appear to be deviating from Western countries. While bearish sentiment seems to be prevailing given recent price action, bulls may once again regain control upon a retest of key support just below current levels.

--- Written by Brendan Fagan, Intern

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter