In recent days, the price of copper is showing weakness and forming a downtrend. The price of the metal was influenced by Friday's US employment data. They were much better than expected, which means that the Federal Reserve System will continue to raise and hold interest rates. A strong labor market allows the use of more aggressive instruments of monetary policy to fight against inflation.
A higher rate means an increased probability of recession in the economy. Copper is used in many sectors of the economy and has become a kind of indicator of its "health". A decline in the price of copper could be a leading indicator of economic weakness. Consequently, even if the recession is still far away, prices of copper may already start to be under pressure, creating future problems in the global economy.
According to forecasts, copper production this year will be balanced, as risks of short production will be replaced by new projects. In this case, the metal may even be oversupplied.
Copper production problems in Latin America and Africa, the main producing regions, are risking a supply shortage this year. However, many analysts believe that it is too early to make any conclusions. Analysts estimate the potential loss of production at 5% of total copper production. On the other hand, the proposal can be supported by new projects (e.g., Quellaveco by Anglo American). According to some estimates, the supply of copper this year could rise by more than 5% to 23-26 million tons. In this case, there is a possibility of some oversupply in the market.
According to the technical analysis there is a local downtrend in prices of copper. The medium-term trend continues to be rising. On the back of the latest negative news, the copper is allowed to decline to the lower boundary of the uptrend, where the Fibonacci level of the whole growth wave at 0.382 is also located. Thus, the downside target for copper will be $8660.
Stop-loss will be set on the return to flat movement and on the rise above the 0.236 level of Fibonacci, which corresponds to the price of $9,030.
Decrease in the price of copper:
Take profit – 8660
Stop-loss – 9030
This content is for informational purposes only and is not intended to be investing advice.
