Copper Bounces Off Key Support

Copper prices are rebounding ahead of the weekend with the futures market trading 3% up off the week’s lows. Fear over the health of the US economy have been a major headwind for copper prices recently, adding to bearish sentiment stemming from concerns around Chinese demand. Weakening Chinese industrial data in recent months has seen traders covering long positions in line with a falling demand outlook. As a result, industry data shows that expected Chinese copper demand growth this year has fallen to 1.2% from 2.9% prior. More recently, US demand forecasts have also been lowered in line with weakening US economic data. As recession fears in the US grow, the picture has turned less encouraging for copper bulls with the two leading economies now expected to see reduced demand this year.

Mixed US Views

While some are pointing to increased US recession risks, expectations are still mixed with some downplaying the severity of recent labour market cooling. Looking ahead, projected Fed easing should help copper prices recover further through the medium term. Provided we don’t see a further deterioration in US data, USD is likely to cool as the Fed cuts rates through September – year end. This backdrop should revive demand for copper, particularly on the back of the correction we’ve just undergone. Looking ahead, focus next week will be on a slew of US data with PPI and retail sales due as well as the latest Chinese industrial production readings.

Technical Views

Copper

The sell off in copper has stalled for now into a test of the 3.9350 level. However, while price remains within the bear channel and below the 4.3000 level, focus is on a continuation south with 3.6720 the next support area to watch. Back above 4.3000, focus shifts to 4.5785 next.