Copper Slides After Rejecting Key Tech Levels, Looking Past China’s Monetary Stimulus

Copper Analysis

Economic activity in China has been revitalized, after the government shifted away from the detrimental zero-Covid policy. However, discouraging incoming data over the last couple of months, have cast doubt over the recovery of the world's second largest economy and one of the top consumers of Copper.

As a result, the commodity dropped further in May, erasing the gains from the strong 2023 start. The poor economic data though, created scope for stimulus by authorities and helped Copper into a three-week rebound.

These expectations materialized in June, as the Chinese central bank started by lowering a key short-term rate by 10 basis points last week ^[1], in order to provide liquidity and facilitate the economic growth. More such action followed in quick succession, since the PBoC cut the medium-term lending facility (MLF) ^[2], as well as the one-year and five-year loan prime rates (LPR) ^[3].

The central bank's activity supported Copper, helping it extend the advance above the 200Days EMA and the daily IChimokou Cloud. It rejected this key region however and slides towards a losing week, as broader sentiment soured after the surprisingly aggressive rate hike by the Bank of England. ^[4]

It now tests the critical 38.2% Fibonacci of the last leg up and the EMA200, which makes it vulnerable to 3.708-6, but the 2023 lows (3.543) looks distant at this stage. If however Copper manages to contain the correction at the current levels, it does not lose the ability to push for higher highs towards the descending trendline from this year's highs (4.060-5). Further advance past this resistance looks like a toll order though, in the current environment.