Copper price rally ran out of gas today as investors continued to worry about risks of a second wave of infections in most countries. The decline saw the metal move from a 8-week high of $2.4294, where it had formed a double bottom.
Copper retreats on fears of more infections
Copper has made several headlines in the past few weeks as its price has been on an upward trend. The main catalyst for the rally was that many countries were starting to ease the previous restrictions as the curve flattened. Some of these countries are the United States, the United Kingdom, and Germany.
Also, data from China showed that exports and imports in April were significantly better than in March. As the biggest consumer of copper products, traders were optimistic that this will spur demand in the industry.
The price has also risen because of the perceived demand by companies manufacturing face masks. This is after it emerged that the metal was effective in repelling the virus causing COVID-19.
Still, there are two main reasons why copper price is under pressure today. First, some countries have started to report new cases. In China, authorities reported a new cluster of new infections in Wuhan, the Chinese city where the virus started. The five cases were found in a single residential community. Similarly, new cases have started to rise in South Korea, where new cases rose by 35 on Sunday.
Second, there are concerns that the copper industry will be oversupplied. According to Fitch, there will be a surplus of 344k tons of copper this year from a deficit of 63,000 tons last year. The surplus will reduce slightly to 162k in 2021.
Download our Q2 Market Global Market Outlook
Copper price technical outlook
On the daily chart, copper price found a significant resistance at 2.4300, which was slightly above the 50% Fibonacci retracement level on the daily chart. The price also slightly above the 50-day EMA. At this point, this price action means that the price may either continue rallying or have a pullback. A close below 2.3560 will mean that there are sellers in the market, who will be keen to push the price lower. This price is along the 50-day EMA and will also cause a bearish engulfing pattern.
On the other hand, a move above 2.4300 will mean that bulls are still in control, which will lead to the continuation of the upward trend.