Copper Breaks Highs

With (Dr) Copper often seen as a barometer for global economic health (or at least projected global economic health), the rally in copper futures is certainly an encouraging start to the New Year. A combination of a weaker US Dollar and budding optimism around China reopening its borders is helping lift sentiment this week. Weaker-than-forecast wages growth in the US last month has reinforced the outlook that inflation is likely to have cooled further last month, to be shown in Thursday’s US CPI reading.  If seen, USD is likely to continue lower helping lift risk sentiment further, boosting copper prices near-term.

The China story is an interesting one with traders now essentially caught between fears around surging infection and death toll numbers and optimism around border controls being relaxed for the first time since the pandemic began. While restrictions remain relaxed, however, focus is likely to stay on the positive side with copper demand forecast to increase as trade picks up. However, should the covid story deteriorate (particularly with any reversal in the easing of restrictions), this would be bad news for copper prices.

Technical Views

HG (Copper futures)

Copper prices have reversed sharply off the 3.7300 lows and are now trading back above the 3.9410 level. While above here, the focus is on a break of the 4.1185 level, opening the way for a fuller move up towards 4.4830 longer term. However, worth noting we are seeing strong bearish divergence on momentum studies so bulls should be wary on any move back below the 3.9410 level.