Copper Holding at Highs

The rally in copper prices has become one of the big sleeper trades of the year so far with copper futures rallying over 40% off the YTD lows and breaking out to new all-time highs. Indeed, January has been the only losing month for the metal with demand surging higher each month fuelled by supply concerns, rising demand in China and dovish Fed expectations. Speculative buying has added fuel to the fire with short-term players eager to profit from the bullish momentum we’ve seen recently. However, the move has stalled for now into a test of the prior highs around the $5 mark. Futures prices pierced above the level briefly before settling below and with plenty of long tails seen on the last few daily candles at the level, might we see a correction near term or is price merely consolidating before the next push higher?

China Demand

There was always likely to be some volatility as we tested the prior highs. The level marks a natural profit target for many traders and will no doubt have found plenty of selling interest from scalpers banking on a reaction lower. However, the macro-backdrop remains encouraging. Data out of China this week showed strong growth in industrial production at 6.7%, up from 4.5% prior and well above 5.5% expected. Rising demand in China has been a key driver of the rally and shows no signs of slowing down. Additionally, with supply concerns still rife and no new wave of mining sites coming online yet, copper should retain plenty of buying interest.

USD in Focus

Finally, a slight cooling in US CPI this week has given traders restored confidence in projected Fed easing. Despite some Fed players calling for the Fed to be patient with rates, September rate cut chances are growing. Any further US data weakness should bolster this narrative, weighing on USD and allowing copper room to push higher.

Technical Views

Copper

For now, the market remains caught between support at 4.84 and resistance at the prior highs around 5.0370. Momentum studies remain bullish here but are showing bearish divergence which flags correction risks. While support at 4.5785 holds, the focus is on a continuation higher and a further breakout in coming weeks.  

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