Copper prices are trading lower this Wednesday, as investors capitalize on the rising US Dollar (the counter asset in the XCUUSD pairing) to take profits.
A more expensive dollar makes dollar-denominated commodities more expensive for buyers that require conversion of their local currencies to the greenback (such as China and Europe). This typically tends to cause demand to cool, leading to a drop in the prices of these commodities in the short term.
However, the downside on the XCU/USD pair appears to have been limited by the prospects of sustenance of high demand as the global economy pushes towards recovery.
The chances that the US Congress will pass the $1.9trillion stimulus package is high, and coronavirus vaccinations continue in the UK and US at a steady pace, prompting optimism for recovery. Furthermore, inventories remain low, and even the Chinese New Year holiday which typically presents a drop in demand has not translated to a build-up of inventories. Therefore, returning factories in China could ramp up demand which could severely stress current inventories.
Copper prices are down 0.44% on the day.
Price has met resistance at the 3.8340 price mark, and this has been followed by a retreat towards the support at 3.7945, putting that level at risk. However, copper price action requires follow-up selling to drive prices below this support. If this support level is taken out, copper price could be on its way towards 3.7345, with 3.6530 lining up as additional support.
On the flip side, a bounce from 3.7945 allows the price to retest the 3.8340 resistance. A breakout allows the copper price to extend its gains into 9-year highs. It is also possible that price may range trade for a while, in which case 3.8340 and 3.7945 would constitute the upper and lower boundaries of the range respectively.
