Copper price prediction: bullish fundamentals, bearish technicals
- Copper price is hovering around a key support level amid low inventories and a strong US dollar.
- The formation of a rising wedge signals a probable trend reversal.
- The bears are testing the stability of September's crucial support level of $4.2500.
Copper price remains steady above $4.2500, which has been a crucial support level for the meta in September. However, based on the formation of a rising wedge, a trend reversal is likely.
Decline in inventories
Tight supply in China has supported copper price above the crucial level of $4.2500. Warehouses registered on the Shanghai Futures Exchange (CU-STX-SGH) had their inventories drop to 44,629 tonnes in the past week. The figure represents the largest decline since June 2009. Notably, the stocks have been dropping for seven consecutive weeks.
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At the same time, copper inventories in LLME-linked warehouses (MCUSTX-TOTAL) have declined by over 10% since the beginning of September. The stocks are currently at 223,175 tonnes. Besides, the cancelled warrants, which refers to the metal set aside for delivery, is currently at 44%.
On the other hand, the rallying US dollar is curbing copper price gains. Similar to most other commodities, a strong greenback acts as a bearish catalyst for the red metal. This is founded on the fact that such an environment makes the commodity more expensive for the buyers holding other currencies. Earlier on Tuesday, the dollar index, which tracks the value of the US dollar against a basket of currencies, was at its highest level since late August.
Copper price technical analysis
The red metal is up by about 22% since the beginning of the year. However, it remains 12.11% below the all-time high of 4.8850 that it hit in mid-May. In September, copper price has been subject to heightened volatility; reaching a high of 4.4710 and a low of 4.0155. Despite the price swings, 4.2500 has been a crucial support zone.
At the time of writing, the industrial metal was trading at 4.2910. On a three-hour chart, copper price is slightly above the 25 and 50-day exponential moving averages. It is also slightly above the 200-day EMA. Based on these technical indicators, it may record further gains.
Nonetheless, with the formation of a rising wedge, one cannot dismiss the possibility of a trend reversal. Granted, it is yet to form an apex. As such, it will probably record curbed gains before the decline.
Based on this perspective, it may surge to Monday’s high of 4.3180. By doing so, it will remain above the support level of 4.2635, which is along the 25-day EMA. A decline below the crucial support level of 4.2500 will signal the beginning of the trend reversal. If that happens, 4.1945 will be the bears’ next target.