Copper starts this week with a decline due to concerns about the U.S. debt ceiling. A default in the country will lead to a sharp fall in the global economy, affecting demand for key commodities. Copper is widely used worldwide, so it is extremely sensitive to changes in the global economy. Thus, the price of the red metal might resume its decline because of disagreements in the country.
President Joe Biden still confronts the Republicans in Congress on the budget allocation. If the government defaults on its debts, financial markets will collapse, the number of jobs will significantly decrease, and interest rates will rise.
The President is ready to cut spending, but he also intends to increase tax incomes as part of a plan to reduce the deficit. The Republicans are not willing to raise the debt ceiling until they get sure that Biden will make massive cuts in federal spending.
Uncertainty on U.S. monetary policy puts additional pressure on the red metal.
Some officials suggest continuing policy tightening, as inflation persists. Others consider a pause is necessary because of the threat of a recession.
Fed Chair Jerome Powell reiterated uncertain consequences of extended rate hikes on Friday. Wall Street strategists took this comment in favor of a pause in the aggressive cycle of monetary policy tightening.
However, the position of the U.S. central bank might change dramatically if there is a default in the U.S. It is forecast on June 1 if the decision on the country’s debt ceiling is not made.
According to the technical analysis, the copper price has once again fallen below the 0.5 Fibonacci level from the growth wave. A flat trend is formed on the daily timeframe, which was broken down amid the fundamental negativity. There were attempts to consolidate below the 0.5 level within this rectangle, but previously they were unsuccessful. Now the situation might change.
The nearest downside target is 0.618 Fibonacci level, which corresponds to the price of $7,950. A Stop-loss will be set at exiting the flat trend through the upper limit at $8,345.
Copper prices are likely to decline:
Take profit – 7,950
Stop-loss – 8,345
This content is for informational purposes only and is not intended to be investing advice.