Copper opened the year with a strong rally, heading 16% from a low of 8177 on January 4 to a local high of 9538 on January 18. That's where the momentum has run out, and now there is a consolidation on the reached highs. Meanwhile, a "flag" pattern has appeared on the chart as a result of the past upward move, suggesting that the growth will continue at the end of the lull period.
It should be noted that the last candlesticks on the daily chart have long tails at the bottom, but no major drop in trading has been recorded. In other words, traders tend to buy back the formed drawdown, and this also speaks in favor of positive prospects for renewed growth of copper.
From a fundamental perspective, it is worth paying attention to the Reuters publication about a substantial slowdown of copper production in Chile. This country is the largest copper manufacturer in the world, and it is now likely to see much slower production.
So, the peak level of copper output in Chile has been estimated at 7.14 million tons to be reached only by 2030. It is far below the previous forecast of 7.62 million tons by 2028, published last year. Many important copper projects have not made any progress in terms of engineering or environment due to the Coronavirus outbreak.
A sluggish growth in Chile's copper production could provide support to the price of this metal. Besides, the protests in Peru reduced production at large copper mines in this world's No. 2 country, being another driver of higher prices.
If copper fails to break below 9250, the most likely scenario is a renewed rally with the first targets at 9400 and 9450.
The following trading strategy can be suggested:
Buy copper at 9300. Take profit 1 - 9400. Take profit 2 - 9450. Stop loss - 9250.
Traders may also use Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
