Copper Price Forecast Overview:
- Amid a weaker US Dollar, copper prices are still coiling during their bullish breakout attempt.
- Losses by the US Dollar versus a slew of Latam FX suggests tailwinds remain strong for copper prices (Chile accounts for more than 50% of global copper production).
- A multi-year trendline break suggests that a long-term bullish view is appropriate for copper prices.
Copper Prices Weather Yield Rise
Copper prices are highly sensitive to global growth and liquidity conditions, which is why coming into 2021, with swelling sovereign debts and prolonged low interest rates fueling the start of the coronavirus pandemic recovery, it was one of the favored metals in the commodity space. But while the jump in US Treasury yields at the start of the year proved to be harmful to many commodities, in particular gold and silver prices which fell by over -2% each during the first week of the year, copper prices gained over +5%.
Amid a weaker US Dollar (thanks to US yields backtracking), copper prices are still coiling during their bullish breakout attempt.A weaker US Dollar can feed into a stronger Chilean Peso, an important factor for copper prices. Chile accounts for more than 50% of the world’s copper exports, so a weak US Dollar environment (akin to 2009-2011) should be supportive of copper prices, same for iron ore (vis-à-vis strength in the Australian Dollar).
COPPER PRICE TECHNICAL ANALYSIS: DAILY CHART (January 2020 TO January 2021) (CHART 1)
Copper prices have had a strong start to the year, gaining over +5% last week and have nearly erased their losses thus far this week. In fact, if US Treasury yields’ rise is seen as an increased expectation for inflation and growth, then a rising yield environment may not be bad for copper per se, but rather an inconvenience prior to further gains.
Copper prices have coiled into a bull flag between 3.4970 and 3.7128 since the start of 2021, and in context of the break of the descending trendline from the February 2011 and June 2018 highs, it appears this consolidation is part of the continuation process higher.
It’s worth noting that while daily MACD and daily Slow Stochastics have both receded from extreme bullish readings or overbought territory, copper prices have not fallen. Now that copper prices are back above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order, traders may want to be on alert for a bullish breakout attempt in copper prices above 3.7128.
COPPER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (September 2008 TO January 2021) (CHART 2)
Copper prices’ breakout above the descending trendline from the February 2011 and June 2018 highs suggests that a multi-year bottoming process commenced in mid-2020. This point of view is reinforced by the failed bearish breakout in early-2020, which saw the multi-year symmetrical triangle support temporarily lost for a few weeks. Clearing the June 2018 high officially ended the multi-year series of ‘lower highs and lower lows.’ As long as the uptrend from the March and October 2020 swing lows is maintained, copper prices retain a bullish bias.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
