As risk aversion continues to take hold of the markets this Tuesday, copper prices remain under pressure just below the $3 per pound mark. The Research Team at Commerzbank is predicting a drop in copper price at the London Mercantile Exchange (LME) to the August lows at $6226.0 per ton ($2.76 per pound), after forming a top at 6877.50 per ton.
According to the analysis from Commerzbank, a recent advance in copper price has taken it to two and a quarter year highs, but a sudden drop below the 55-day moving average has occurred. A drop below the current lows of September would allow sellers to push prices towards the August lows, after making contact with the July lows.
Commerzbank feels that a rise above recent highs would be unexpected, but if this were to occur, copper prices would once more assume a bullish stance that would allow it to make a chase for the December 2017 and June 2018 highs.
Commerzbank’s copper price outlook comes as speculators increased their short positions on the red metal as seen from open interest data, on the back of a massive buildup in LME warehouses. Latest inventory for copper at LME shows that the stocks rose by 29,500 tonnes yesterday. Copper price initially traded lower on the day but is now trading flat at 2.6795.
Is the analysis by Commerzbank in order? Yesterday’s analysis of price action tallies with theirs, as price broke below the rising wedge in fulfilment of the bearish resolution expected of the pattern. However, there has been a lack of follow-through selling as price attempts a pullback.
The 4-hour chart reveals another smaller rising wedge formed by price action in the last 1 week, which also favours downside resolution.
Price action on the daily chart hit intraday highs at the lower border of the larger wedge, with the candle forming a pinbar. Copper price picture has bearish connotations, with follow-through selling targeting 2.9510 and 2.2165 below it. A drop towards 2.8020 can also not be ruled out, if the measured move from the breakdown of the wedge on the daily chart plays out.
On the flip side, a break above 3.0010 by the pullback move opens the door for a retest of 3.0275. Only when this price level is breached with the price hitting 3.0920 and 3.1255 per pound will the wedge pattern be negated.
