Copper quotes continue to range around the minimums since the beginning of the year. Negative sentiment has prevailed in the red-metal market since the middle of April, which brought the technical indicators to the strongest oversold condition since last July. Due to this there might be a slight rebound upward in copper prices, but the sellers can take over the initiative at any moment and send the quotes back under the level of 8500.
On Thursday, copper prices are bouncing back from local lows. Assumptions about the possible pause in interest rate hikes by the U.S. Fed have increased the demand for risky assets. This gave support to industrial metal prices. In addition, for the third day there is a decrease in the dollar index. As a consequence, the value of assets denominated in U.S. dollars becomes more profitable for investors from other countries.
However, according to Fan Rui, an analyst at Guoyuan Futures Co., the rise in copper prices may be short-lived. This is connected with the continuing concerns of market participants about the recession. A Reuters poll also points to expectations for a slight rise in the red metal's quotes, but weak demand for the metal in China will limit the rise in copper prices. Copper consumption from China is not meeting expectations, so the global market is expected to have a 133,000-ton surplus of the metal.
On the background of slow growth in demand, China may reduce imports of copper both in ore and scrap for the nearest future. At the beginning of the year, companies were still optimistic about the forecast before the peak season of demand for red metal. However, copper consumption is still recovering slowly, especially in the construction sector.
The rebound in copper prices could last until the level of 8700. This will allow the RSI indicator to move out of the oversold zone and not affect the new decline in copper quotes. A further return to the 8500 level seems to be the most likely scenario.
The following trading strategy option can be suggested:
Sell copper when the price rises to the level of 8700. Take profit – 8500. Stop loss – 8780.
This content is for informational purposes only and is not intended to be investing advice.