China Downgrade

Copper prices look to be stabilising today following two days of heavy selling which saw copper futures reversing sharply from the 3.9410 level. The reversal lower comes amidst a fresh uptick in concerns over the health of the Chinese economy. News that ratings agency Moody’s has cut China’s credit outlook to negative has further underscored the shift in sentiment towards China. Moody’s noted persistent and structural low growth as a major risk to the economy. Alongside the move, Moody’s has also shifted to a negative outlook on 18 non-financial corporates, reflecting the broader concern for the economy.

USD Recovery

The news this week has been accompanied by a recovery in the US Dollar which is further depressing copper prices. While traders are widely expecting the Fed to hold rates unchanged in coming months before cutting rates early next year, there is some uncertainty ahead of Friday’s jobs data which is leading to the current position-covering in USD.

Volatility Risks on Friday

On the back of a heavy sell off over November, USD is ripe for a short squeeze if Friday’s data comes in unexpectedly strong. If this is the case, near-term uncertainty around the Fed should see USD popping higher, pulling copper prices lower near-term. However, if the data shows further weakness on the back of last month’s reading, this should see USD coming under fresh selling pressure allowing copper to recover higher.

Technical Views

Copper

The recent rally saw the market breaking out above the contracting triangle and trading up to test the 3.9410 level. Resistance is holding for now with price since turning back down to retest the broken channel top. While this area holds, focus remains on further upside and a breakout above 3.9410. To the downside, 3.7645 is the key support to watch.