Copper Prices at Risk of Trading to a New Multi-Year Low, FOMC

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Copper prices are lower this morning and might be on their way to a new multi-year low. Yesterday, the minutes from the FOMC July 30-31, 2019 meeting showed that the US central bank was not as united on rate cuts as the markets were. Some Fed members are were ready to cut by 50 bps, while somewhere not prepared for any cuts, and as we know now, the Fed settled on a 25-bps rate cut.

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Following, yesterday’s minutes the market expectations for a 25-bps rate cut at the September 18 meeting remains at a high of 98.5%, but just last week the expectations for a 50-bps rate cut were at 31.5%. Today they are at 1.5%. As rate cut expectations have moderated this has sent the dollar higher, and copper prices lower. Earlier today, the Markit Euro Area PMI composite index, a leading economic indicator, rose to 51.8 from 51.5 and beat expectations. However, as for copper traders it appears that they are focusing on the fact that the German version of the index still suggests that the German manufacturing sector is still contracting. Earlier this month, both UK and German GDP contracted.

The low level of economic activity in Europe, and the Fed not being united on their interest rate view is likely to keep putting the pressure on copper prices.

What could also weigh on copper prices is that the warehouse levels of copper at the London metal exchange on August 20 were at 329,600 ton. As seen in the chart below the level of inventories are around the same levels as in April 2018, when copper prices were trading about 26% higher than today.Source: Infomine.com.Technically, the December copper contract triggered a large head and shoulders pattern on July 22. The pattern was formed in the 2017 to 2019 period, while a smaller head and shoulders pattern was created in the last 12 months. We have denoted the head, and the left and right shoulders of the smaller pattern with an orange color. The minor pattern is suggesting that the price might be able to trade to 2.24 as long as the price trades below last week’s high of 2.6490.Download our latest quarterly market outlook for our longer-term trade ideas.

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