Copper price: corrective rebound or downtrend reversal?
- Copper price has risen by 6.49% since plunging to a four-and-a-half month low of 3.96 in the past week.
- Despite the rebound, price remains below the crucial support-turn-resistance level of 4.25 and 200-day EMA.
- A weakening US dollar has boosted copper price as slowed growth curbs gains.
Copper price is trading steadily above the psychological level of 4.00 after plunging below it in the past week. However, it remains below the crucial support-turn-resistance zone of 4.25 and below the long-term 200-day EMA. As such, investors are keen on whether the current rise is a corrective rebound or a reversal of the recent downtrend.
Weakening US dollar
In addition to the technicals, a decline in the value of the US dollar has boosted copper price in the new week. Concerns over the status of the US monetary policy going forward has triggered profit-taking. In the past week, FOMC meeting minutes highlighted the US central bank’s intention to taper its asset purchases later in the year. However, it highlighted that it would not necessarily be a precursor for hiking rates.
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Besides, gains in the equity market have boosted riskier currencies while weighing on the greenback. Like most other commodities, copper price has an inverse correlation with the value of the US dollar. At the time of writing, the dollar index was down from its highest level year-to-date of $93.73 to $93.15.
Slowed economic growth
Even with the recent rebound, concerns over slowed global economy is curbing copper price gains. Monday’s preliminary data on manufacturing PMIs from different regions has heightened growth concerns. US manufacturing PMI came in at 61.2 compared to the forecasted 62.5. Besides, UK and Eurozone’s manufacturing PMI missed the analysts’ estimates by coming in lower at 60.1 and 61.5 respectively.
The recent copper price movements come at a time when other industrial commodities are also recording significant declines. For instance, iron ore price is down by about 40% over the past month amid concerns over Chinese demand. On Thursday, it dropped by 15% to $130.20 per tonne. Morgan Stanley has termed the plunge as the largest since the introduction of the commodity’s spot prices 13 years ago.
Copper price technical outlook
Copper price has extended Friday’s gains after hitting a four-and-a-half month low of 3.96 on Thursday. That was the first time since mid-April that the red metal dropped below the psychological level of 4.00 in the COMEX market. At that point, it was in the overbought territory with an RSI of 13.
Since the plunge, copper price has risen by about 6.49%. At the time of writing, it was up by 2.03% at 4.22. On a three-hour chart, it is trading slightly above the 50-day exponential moving average with an RSI of 62. However, it remains below the long term 200-day EMA.
In the near term, I expect the price to trade within a tight range of between the resistance level of 4.25 and along the 50-day EMA at 4.18. Since mid-June, 4.25 has been a crucial support-turn-resistance level. The bulls may manage to push the price to the 200-day EMA at 4.30 before pulling back to 4.25.