Copper prices rebounded on Friday after China announced a $570 billion stimulus package. The stimulus package, according to analysts close to the situation, will provide a two-pronged approach to dealing with the dropoff in factory activity and the dampened economic growth outlook for the country.
Under the terms of the new stimulus package, China is to offer financial support to cash-strapped businesses who have been crippled by weak demand. In contrast, the second package will be used for infrastructural spending to boost growth to a minimum target of 5%.
This new stimulus package could be great news for industries which have seen activity tank to all-time lows as shown in the last manufacturing PMI reports for February 2020. By boosting manufacturing and spending on new infrastructure, it is expected that industrial activity will pick up, which will in turn drive demand for ores used in such processes such as copper. Copper traders responded positively to the news, sending copper prices higher by nearly 13 cents an ounce on Friday trading.
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The daily chart on the XCUUSD presently shows that copper price is experiencing some choppy price action, which has seen the asset shed some of its gains for the day. However, it is still trading 1% higher on the day and is challenging the 2.49154 former support-turned-resistance. Continuation of today’s upside may result if more buyers come in to force prices upwards, building from the hammer on the weekly chart. Such a push in copper prices may see it gain to 2.53518, which is the resistance formed by the 2 August, 4 October 2019 and 10 February 2020 lows, acting in role reversal. 2.60232 remains a viable upside target if the price recovery is strong.
On the flip side, more risk-averse sentiment from the coronavirus outbreak may spook the markets and provoke a renewed selloff, which targets the 2.41494 support (14 November 2016 lows), with 2.30297 lurking underneath as a further support target.