Key points:
This is a follow up article to: Copper prices edge higher on Fed rate cut hopes
Copper prices nudged higher following the Federal Reserve’s recent rate cut of 50 basis points. The positive sentiment driving the market reflects hopes for a manageable economic slowdown in the U.S., rather than a full recession.
Picture: Copper prices rise higher after Fed rate cut, as observed on the VT Markets app.
We look to the charts. Copper prices have faced some downward pressure after reaching recent highs, now trading at $4.2767. The MACD on the hourly chart shows signs of weakening momentum as the histogram is narrowing, indicating potential further downside in the near term. The moving averages (24, 72, 24) are still in a bullish alignment, with the 24 EMA holding above the longer-term averages, suggesting that the medium-term trend remains intact.
On the demand side, China’s robust appetite for copper continues to support prices, with copper premiums on imported material reaching their highest levels this year. Additionally, declining inventories on the Shanghai Futures Exchange indicate a tightening supply situation, which could provide a floor for prices even amidst short-term corrections.
If prices continue to correct, support may be found near the $4.24 level. On the upside, resistance remains around the recent high of $4.35, and a breakout above this level could signal a continuation of the bullish trend.
Currently, spot copper prices trade around $4.30 per pound.
The Federal Reserve’s rate cut, while aggressive, reflects its aim to mitigate economic risk, but recent U.S. data has reinforced the view that any economic slowdown will be mild. Copper traders have welcomed this cautious optimism, as a slowdown would likely be less damaging to industrial demand than a full-blown recession.
Meanwhile, the demand outlook in China is crucial for the trajectory of copper. Rising premiums on imported copper, paired with falling inventories on the Shanghai Futures Exchange, reflect a tightening supply.
See also: How to trade copper
Historically, the role of China as the largest global consumer of copper has created large swings in the market. For example, in 2010, the post-recession stimulus package in China helped drive copper prices from under $2 per pound in late 2008 to over $4 per pound by early 2011.
The signs of recovery in Chinese demand, as reflected in recent market data, suggest a similarly positive outlook for copper in the near term.
As the Fed proceeds with interest rate cuts, any further economic slowdown or recovery in the U.S. will impact industrial demand for metals. Meanwhile, continued improvements in Chinese demand and the corresponding drawdown in inventories could support further price increases. However, traders should remain cautious and exercise risk management plans with diligence, especially when there is any potential slowdown in China, which could derail the current upward momentum.
Official partners:
