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China Manufacturing PMI Preview: Copper Price in Focus

Copper Price

The China Manufacturing PMI for June 2020 as reported by the CFLP is due for release at 1 am UTC. Markets are expecting a reading of 50.4, which will leave the Manufacturing PMI virtually unchanged from the 50.6 reading for May 2020. 

The reason for the static expectation is the resurgence of the coronavirus outbreak in certain parts of the country, necessitating lockdowns of Beijing and certain vital towns. This renewed lockdown is expected to have truncated the recovery in factory activity in China. 

The Non-Manufacturing PMI is due for release at the same time, with analysts expecting a reading of 53.3 versus the previous figure of 53.6. This data piece is considered of lesser importance than the China Manufacturing PMI.

Copper price action will be in view for this report, as the metal is considered a proxy asset for measuring the state of the manufacturing sector/factory activity in China. China is the largest importer of copper, which serves the industrial base of China that is responsible for 40% of the world’s production processes. 

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Outlook for Copper Price

The deviation factor to be used in trading the China Manufacturing PMI data is 0.2 (previous – consensus figures). Therefore, if the reading is 50.8 or higher, then we can expect a boost in copper prices. Such a scenario has the potential to get copper prices to challenge the 2.6860 resistance level, which has thus far resisted several breakout attempts in the past two weeks.

A successful break of this level allows the daily copper price candle to move towards the resistance zone that has 2.7490 as the price ceiling. Only a break of this zone to the upside allows further advance towards 2.8020 and possibly 2.8695, in that order. The April 2019 highs of 2.9795 remain a world away and require strong recovery in factory activity (to pre-coronavirus levels) to be attained. 

On the flip side, a reading of 50.2 or lower has the potential of forcing a pullback towards the 2.6755 support line. Sub-50 readings may initiate a more substantial selloff which targets 2.5535 and 2.4485, in that order. It is pertinent to note that price is currently at the 78.6% Fibonacci retracement from the swing high of Jan 2020 to the swing low of 19 March 2020. Therefore, the various Fibonacci levels below this price level are all relevant to a decline in price from a poor reading.

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