What Next For Copper?

Copper prices are looking a little more buoyant today with the futures market in the green through early European trading on Friday. Still, the metal is ending June at lows and is heavily down from the YTD highs recorded in May.  A shifting Fed outlook has been a big part of the decline as has weak data out of China recent. Copper futures are currently sitting around 17% lower from the May peak.

Hawkish Fed Shift

On the Fed front, recent months have seen a hawkish shift culminating in the bank slashing rate cut 2024 rate-cut projections from 3 to 1 at the June FOMC. With inflation forecasts revised higher, the Fed has warned that easing could be delayed depending on how inflation develops. Given that copper had previously been rallying on the expectation that the Fed would cut rates three times this year (initially pegged to begin in June), the shift has kept USD supported and fuelled a weakening of demand for copper.

Weak China Activity

Alongside this shift, we’ve also seen a softening in Chinese data with industrial readings cooling in recent months. Demand from China has also weakened, in line with these readings, stoking fears of a larger demand pull-back developing.  While this narrative remains in place, copper looks likely to remain subdued near-term.

US Inflation Data on Watch

Looking ahead today, traders will be closely watching the latest US core PCE reading with the chance that we could see a recovery rally in copper in response to any downside surprise and USD weakening. If data tops forecasts, however, this is likely to send copper lower into next week.

Technical Views

Copper

The sell-off in copper has seen the market breaking down below the bull channel lows and below 4.5785. price is now testing support at 4.2975 and with momentum studies bearish, risks of a deeper move towards 4.0145 are seen. Only a move back above 4.5785 will alleviate the downside bias.