Ever since the rumors/news of China's reopening emerged in November 2022, Copper has witnessed a strong rally. The market anticipated increased demand for the metal, considering China's status as the largest importer and consumer of copper worldwide. However, these expectations began to wane due to ongoing disappointments in China's factory recovery, with copper imports even declining in the first quarter of 2023. Additionally, a global manufacturing slump is evident as numerous Manufacturing PMIs continue to contract.
As a result, the "China reopening trade" has been unwinding, and we are now almost back to the levels seen in November 2022. Recently, copper has shown a rebound in response to more positive news from China and the potential for further economic stimulus given that inflation in China keeps falling and it’s threatening to turn into deflation. Nevertheless, the overall outlook remains bearish at present, although technical indicators can assist in navigating various scenarios.
Copper Technical Analysis – Daily Timeframe
On the daily chart, copper has recently bounced from a strong trendline and even broke out of a downward one leading to an extension to the 3.8245 resistance. The moving averages have crossed to the upside in a possible sign that the trend may be changing. The buyers will need to break this resistance to then target the swing high at 4.1845. The sellers, on the other hand, may lean on this resistance to target the 3.5475 support.
Copper Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can notice a divergence with the MACD right when copper is trading at the resistance level. This may be a sign of an incoming pullback or reversal. In such a case, the buyers should lean on the upward trendline with defined risk below it to target the breakout of the resistance. The sellers, on the other hand, will want to see the price to break the trendline to pile in and extend an eventual selloff into the 3.5475 support.
Copper Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the short term price action and the divergence going on into the resistance level. This may even be a rising wedge which would have the 3.6950 as target and thus lead to a bigger selloff. Nevertheless, the levels to watch are the 3.8245 resistance and the upward trendline. A breakout on either of those should lead to more momentum.
