Copper price continues its decline for the third day this week on the back of a stronger US Dollar and risk aversion that has hit risky commodity assets. Furthermore, recovery in the production of the red metal in Peru, the world’s second-largest producer of copper, is helping to cool prices this Thursday.
Copper price now goes for 2.9855 per pound, as Reuters has quoted a senior Peruvian government official as saying that copper production in the country has nearly completed its recovery from the pandemic’s impacts. Production in Peru had fallen as low as 20.4% in the period from January to June 2020, but year-on-year output was only down 2.2% in July.
Chinese demand had boosted copper prices from its pandemic-level lows, as falling output in Peru, Chile, Zambia and other producing countries elicited a global shortage in Q2 2020. However, recovering supply has helped to stem the incredible rise of the red metal. Also providing bearish pressure this week is the strength the US Dollar has shown since Monday, which was powered by increasing risk aversion that has hit risky assets this week.
After bursting out of the bullish flag pattern, the price activity hit a peak at the multi-year 3.0920 resistance level on Tuesday, forming a dark cloud cover pattern with Monday’s daily candle. This has provided a technical basis on which the asset is being sold, dropping as much as 1.13% in Thursday’s session.
However, today’s bearish candle is now testing support at 2.9795, following the formation of what now resembles a rising wedge pattern. Further adding to the bearish outlook, on the one hand, is the bearish divergence of price action from 13 July till date, from the tops of the RSI indicator line. This picture, along with the chart pattern, indicates that further correction could be in the offing. This corrective wave must break the 2.9795 support, which allows copper price to target the 2.8695 support. Below this level, further support may be seen at 2.8020 and also at 2.7720. Sellers must also look out for the ascending support trendline which connects price dips of 20 March, 21 April, 15 May, 27 May and 13 August. Price bars must break this line to reinforce selling bias.
On the flip side, failure of the price to break below current support or the ascending trendline, allows for a bullish retest of 3.0275. 3.0920 also in line for a retest if 3.0275 is surpassed. Buying bias can only be reinforced if price action breaks above 3.0920, as this establishes the higher highs needed to support the ascending trendline’s lower lows; the signal for a continuation of the near-term uptrend.
