Weak China Data

Copper prices have come under fresh selling pressure on Tuesday as traders grapple with weaker industrial data out of China and a stronger US Dollar. Overnight, the latest Chinese industrial production reading was seen falling back to 4.5% from 7% prior, below the 6.5% the market was looking for. Indeed, the weakness in that reading looks to be offsetting the better-than-forecast Q1 GDP figure (5.3% vs 5.2% prior and 5.1% expected), suggesting there is still plenty of concern over the metals demand outlook in China. A recent uptick in industrial data over prior months has been a key factor behind the rally in copper. If traders get the sense this rebound has stalled, copper could become vulnerable to a deeper correction lower.

USD Strength

A stronger US Dollar is also weighing on copper today. Yesterday’s US retail sales readings were both seen topping forecasts. The core reading was particularly strong, rising to 1.1% from 0.6% prior, well above the 0.5% expected. On the back of last week’s hot inflation reading, the data adds further strength to the view that the Fed will be in no rush to cut rates anytime soon.

What to Watch

Looking ahead, traders will be paying attention to a slew of Fed speakers due across the week along with further data prints (albeit, mainly second tier) due also. If the US Dollar continue sto advance across the week, this is likely to cause some unwinding of copper near-term while any softening of USD should help revive bullish momentum in the metal.

Technical Views

Copper

The rally in copper has stalled for now into a test of the bull channel highs, following the breakout above 4.2975. While above here, the bullish outlook remains with 4.5785 the next upside target. However, bearish divergence in momentum studies flags reversal risks.  4.1585 and the bull channel lows will be key support to note if we turn lower.