Copper Price Outlook:
- Are higher sovereign bond yields a warning sign of inflation or a welcoming sign of reflation? Narrative aside, copper prices have been surging.
- US Dollar weakness relative to Latam FX, in particular, the Chilean Peso, suggests tailwinds remain strong for copper prices (Chile accounts for more than 50% of global copper production).
- Long-term, a multi-year trendline break suggests that a bullish view is appropriate for copper prices.
Copper Prices Hit Another Yearly High
Are higher sovereign bond yields a warning sign of inflation or a welcoming sign of reflation? Narrative aside, copper prices have been surging on the back of improving global growth expectations and liquidity conditions. In recent days, Federal Reserve Chair Jerome Powell has resolutely confirmed the FOMCâs intent on continuing QE and low interest rates for the foreseeable future, reassuringly saying that any downshift in monetary support would come with âadvance warning.â
Coupled with the progress towards US President Joe Bidenâs $1.9 trillion American Rescue Plan, the weaker US Dollar is driving much of the action in metals, despite the fact that US Treasury yields have increased. Copper prices are benefiting from the global economic and financial environment on the whole, which is in line with our 2021 macro outlook.
COPPER PRICE TECHNICAL ANALYSIS: DAILY CHART (February 2020 to February 2021) (CHART 1)
As noted previously, âcopper 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 higherâŚregardless of how you slice it, copper prices are starting a bullish breakout, and the path of least resistance appears higher.â
Admittedly, the bullish breakout is running faster and further than I reasonably anticipated, but the outcome is nevertheless in line with expectations. Copper prices are looking frothy here, however, with both daily MACD and daily Slow Stochastics at their most extreme bullish/overbought readings over the past 52-weeks, and the differential between the current spot copper price and its daily 21-EMA at its widest differential over the past 52-weeks.
To no surprise, copper prices are still above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. With the fundamental backdrop supportive, the modus operandi for copper traders should be to buy the dip at present time.
COPPER PRICE TECHNICAL ANALYSIS: WEEKLY CHART (November 2008 TO February 2021) (CHART 2)
No change since our mid-February update: âCopper pricesâ 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 âlower highs and lower lows.â As long as the uptrend from the March and October 2020 swing lows is maintained, copper prices retain a bullish bias.â All-time highs from 2011 at 4.6453 are in sight, even if there is a brief pullback.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
