Copper price declined slightly as economic data from around the world pointed to a deeper recession than most analysts anticipated.
Weak economic data pushes copper lower
Copper is often known as the barometer of the world economy. Because of its industrial nature, the price does well when the economy is doing well. Similarly, the price declines when the economy is in trouble.
Recent data from around the world has not been good. As a result, investors are questioning whether there will be enough demand for the metal. In the United States, industrial production, manufacturing production, housing and retail sales have dropped. Similarly, the same trend has been going on in Europe, where manufacturing activity has slumped to a record low. Likewise, the economy will not be good in Japan or Asia if recent data is to go by.
Supply side pressure and China support
The price of copper has received some support from the supply side because the coronavirus has reduced production. In Chile, the number of coronavirus patients has continued to rise, leading to mine closures and production cuts.
South Africa, another producer has been in a lockdown for weeks. At the same time, many commodity producers are planning a record cut on investments. Companies like Anglo American, Antofagasta, and BHB have said that they will slash production because of soft demand.
On a positive sign, data from China has been a bit encouraging. The country, which is the biggest copper consumer has been opening up. As shown below, real estate floor sales, power consumption, container freight, air pollution, and traffic congestion have been rising. The challenge therefore is whether there will be enough demand from the international markets.
On the four-hour chart below, we see that copper price has been on an upward trend since bottoming at $1.97 on March 9. Its price then soared and found significant resistance at the $2.354 level, which is slightly below the 61.8% Fibonacci retracement level. I drew this Fibonacci by connecting the highest and lowest levels this year.
Also, we see that the price was forming an equidistance channel during its climb. Most importantly, the price moved below the channel on Monday, when commodity prices were dropping. As such, I expect the price to continue its upward trend and possibly re-enter the previous channel at about $2.40. This will be possible if it moves above the 50% retracement level.
On the flipside, the pair may move lower, now that it has formed a bearish hammer candlestick pattern. The downward trend will be confirmed if it moves below the 50-day EMA at about $2.30.