Copper prices ended last week with two sharp declines, totaling nearly 5%. The support level at 8850, which successfully stopped attempts of falling to the lower levels in the first half of February, could not bear it this time, and copper declined to its lowest since the beginning of the year. Both technically and fundamentally, the fall is now more likely to continue.
The wide range of last week’s news led to the sharp decline in copper prices. There was a decrease in the number of claims for unemployment benefits in the U.S.; the release of the Fed’s last meeting minutes, where the need for further monetary policy tightening for taming inflation in the country was confirmed. The final straw were the readings for the PCE index on Friday, which did not meet the expectations for a slowdown in price growth.
Domestic inventory in China remains high. At the same time, the level of Guangdong’s inventory has increased for 4 days in a row, setting a new high for the year. Import losses continue to rise. Consumer interest in copper remains low. A significant improvement in China’s demand is expected to take more time.
After breaking through support at 8850, the downside target of 8570–8600 will be relevant for copper. Local highs of November, December and early January are at these levels. Also, there is an unclosed gap which was formed as a result of copper sharp rise on January 6–9. “Bears” might aim to close this gap, after which they will fix some profits, and we will see a certain rebound of the price.
Stochastic indicator lines are directed downward, but still far from the oversold zone, which confirms a sell signal. After reaching the level of 8570 we should expect partial recovery of buyer activity.
The following trading strategy may be offered:
Sell copper below 8700. Take profit 1 – 8600. Take profit 2 – 8570. Stop loss – 8750.
Traders may also use a 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.
