Copper quotes are moving in a local uptrend, having already recovered most of the May losses. Yesterday the price entered the range of 8450-8600, but the strong overbought condition of the technical indicators is limiting the price growth of the red metal. By the end of the working week, it is possible to observe some pullback in copper prices, but if the level of 8350 is maintained, the chances of a further rise will still prevail.
The day before copper was supported by the decline of the dollar against most other currencies. Inflation weakening allowed the Fed to keep interest rates unchanged at yesterday's monetary policy meeting. As a result, copper quotes on the London Metal Exchange set the maximum for 5 weeks, and the trading in Shanghai renewed the 7-week peak.
Ironically, even today's Chinese industrial production figures, which are worse than expected again, may help copper prices continue rising. The fact is that the negative statistics makes it more and more probable to start active stimulation of the economy by the regulatory agencies of the Celestial Empire.
The People's Bank of China (PBOC) was the first to be active. Today, it reduced rates on medium-term loans for the first time in 10 months. The cost of borrowing up to 1 year is now 2.65% (previously it was 2.75%). Perhaps, on Tuesday, the rate on long-term loans will be lowered in a similar way.
According to Brendan Ahern, chief investment officer at KraneShares, the PBoC's actions demonstrate the Chinese government's commitment to support the country's economy. After the removal of anti-covid restrictions production is recovering at a slower rate than predicted. Lowering the rates is meant to increase consumer demand of people and companies. Copper as one of the most important industrial metals will also be under attention.
The strongest overbought since January is preventing copper prices from breaking through the upper boundary of the 8450-8600 range right now. A slight correction to about 8350 would increase the interest for buying the red metal. Then the uptrend can continue.
The following trading strategy option can be suggested:
Buy copper at the price decreases to the level of 8350. Take profit 1 – 8500. Take profit 2 – 8600. Stop loss – 8270.
This content is for informational purposes only and is not intended to be investing advice.
