The price of copper is fast approaching the $400.00 support level as the metals market continues to take a big hit after last week’s more hawkish than expected FOMC policy statement.
Copper has largely been pressured by the strong US dollar currency since the Federal Reserve’s big shift in thinking towards inflation since last week’s meeting. Trading data shows that strength in the greenback has historically been bad for the price of copper.
Bearish news that the Chinese government is prepared to use its stockpiles of copper to prevent inflation rising too fast is also weighing on copper prices. Essentially, the Chinese government is acting to stop domestic issues arising, as consumers would soon face broad based price rises as copper is needed in many electrical goods.
China relies heavily on social cohesion to keep the wheels of the Chinese Communist Party running smoothly. With its massive population Chinese policymakers know very well that ramping inflation could lead to various forms internal dissent.
Most economists believe that the fundamentals behind copper remain solid despite the FED’s recent hawkish shift and China’s actions. Improving global growth and ongoing underinvestment in the mining industry are key reasons why a pullback under $400.00 could be a buying opportunity
According to the ActivTrader platform some 69 percent of traders are bullish towards copper, meaning that a 19-point drop in bullish sentiment has taken place last week.
With the sentiment bias towards copper still at very high levels, I believe more short-term losses remain possible for the metal. Overall, we may need to see sentiment neutralize before copper can start to rally again.
Copper Short-term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern is playing out to the downside, following last week’s major drop decline in the price of copper.
According to the overall size of this typically bearish price pattern copper could be about to drop towards the $390.00 level. This could be a buying opportunity for copper bulls once the pattern reaches its full target.
Copper Medium-term Technical Analysis
The larger picture for copper prices remains very bullish, and continues to show a massive inverted head and shoulders pattern on the weekly time frame, with the price the neckline of the pattern, around the $400.00 level.
According to the overall size of the bullish reversal pattern, copper prices could still hit the $600.00 level. Seeing as the pattern has not fully played out to the upside yet I think a dip-buying opportunity exists.