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Copper at $3.86, Nears 3-Week High on Chinese Stimulus, US GDP Growth
Arslan Butt•Friday, January 26, 2024•2 min read
On January 26th, copper futures for March delivery experienced a modest 0.2% decline to $3.8678 per pound, yet lingered near the three-week peak achieved the previous Wednesday.
Due to the People’s Bank of China’s unexpected reduction in the reserve requirement ratio for regional banks, this performance reflects renewed optimism toward copper. This move is anticipated to inject approximately $140 billion into the Chinese economy.
Additionally, the central bank’s easing of lending norms for the commodity-dependent property sector and its commitment to further measures aimed at bolstering economic recovery in China have alleviated concerns over diminished demand in the world’s top copper consumer. These concerns have significantly influenced copper prices in the past year.
U.S. Economic Events Release; Copper Under Pressure
Following the release of key U.S. economic data, copper futures for March delivery have been navigating the markets with a nuanced perspective.
The data, which includes a better-than-expected advance GDP growth of 3.3% compared to the forecasted 2.0%, paints a picture of a robust U.S. economy. This growth rate, however, is a deceleration from the previous quarter’s 4.9%.
Other significant data points include the following:
- Unemployment claims are at 214K, slightly higher than the forecasted 199K, indicating a stable labour market.
- The Advance GDP Price Index rose 1.5%, less than the expected 2.3%, suggesting subdued inflationary pressures compared to the previous quarter’s 3.3%.
- Core Durable Goods Orders increased by 0.6% month-over-month, surpassing expectations of a 0.2% rise.
- Durable Goods Orders remained unchanged, contrasting with the previous increase of 1.2% and much lower than the prior 5.5%.
- The goods trade balance recorded a deficit of -88.5B, slightly better than the anticipated -88.7 B.
- Preliminary wholesale inventories increased by 0.4%, against an expected decrease of -0.2%.
This mix of data suggests a resilient U.S. economy with moderate inflation, which could influence the Federal Reserve’s policy decisions regarding interest rates.
Higher rates typically increase the opportunity cost of holding non-yielding assets like copper and gold. The resilience in the U.S. economy and moderated inflation give the Fed more leeway to maintain higher rates for a longer duration.
Copper Technical Analysis
Copper’s technical outlook remains critical as it contends with resistance and support levels. The first hurdle is at $3.9203, then there are more obstacles at $3.8950, and the peak is at $3.8995.
These levels may restrict upward movements. The support levels are at $3.86, aligning with the 23.6% Fibonacci retracement, and more substantial support is at $3.84, correlating with the 38.2% retracement level. The Relative Strength Index (RSI) hovering near the overbought mark suggests a potential pullback towards these support levels. Let’s keep an eye on 3.8995 to stay bearish below this level today.
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ABOUT THE AUTHOR
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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.
His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.
His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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