Copper Back in the Black, But Not Out of Danger  

• After 7 months in the red, copper looks set to finish November up 9%
• Year-to-date, it remains down 18%, after a 22% drop from March-October
• Copper hit 20-week high of $3.9470 in mid-November, needs to stay above $3.50

After seven straight months of losses, copper looks almost certain to finish November in the positive, with a monthly gain of 9% despite COVID-related demand disruptions in top metals-consuming country China. 

Yet, technically, those long the market may have to pray that a pound of the metal doesn’t go below $3.50 in order for the rebound to extend into December.

Copper Daily

Charts by SKCharting.com, with data powered by Investing.com

Copper has risen just over 1% this week, after a drop of more than 7% over two previous weeks. In Tuesday’s early trade, the front-month March copper contract on the COMEX division of the New York Mercantile Exchange hovered at $3.66.

Just two weeks ago, as the dollar tumbled, boosting the value of commodities priced in the U.S. currency, March copper hit a 20-week high of $3.9470.

Prior to that, in early July, the benchmark copper contract plunged to a 20-month low of $3.1315. Even earlier, COMEX copper hit a record high of $5.02. Year-to-date though, copper is down 18%.

The current volatility in copper comes amid fierce public protests against COVID-19 lockdowns in China. Rallies against China’s unusually strict anti-virus measures spread to several cities over the weekend in the biggest show of opposition to the ruling Communist Party in decades. Authorities eased some regulations, apparently to try to quell public anger, but the government showed no sign of backing down on its overall coronavirus strategy, and analysts expect authorities to quickly silence the dissent. Chinese authorities also dispatched phalanxes of police to prevent fresh gatherings.

Traders of metals, along with other commodities, are also on the edge over worries about Friday’s impending U.S. jobs number for November and how that could impact the Dec. 14 interest rate decision by the Federal Reserve.

Expectations that the Fed may soon slow the pace of its aggressive rate hikes were boosted by last week’s minutes from the central bank’s November meeting. Friday’s U.S. jobs report will put those expectations to the test.

Economists are expecting the U.S. economy to have added 200,000 new jobs, in what would be the smallest increase since December 2020.

But investors have reason to remain cautious—five of the last six jobs reports have come in better than forecasts and another strong reading could spell trouble for U.S. stocks.

While Fed Chair Jerome Powell has indicated that the central bank could shift to smaller rate hikes from next month, he has also said rates may ultimately need to go higher than policymakers thought would be needed by 2023. 

James Bullard, president of the St. Louis, Missouri division of the Fed, said financial markets were underestimating the odds of policymakers being more aggressive in fighting inflation from next year.

Copper Weekly

Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said COMEX copper’s return to below $3.50 will promptly attract sellers aiming to hunt for levels from $3.30 to $3.16 and $3.02.

“The short term rebound in copper now is more of a reaction from oversold conditions prevailing over a fairly long time,” said Dixit.

Copper Monthly

He added that the metal’s daily chart action indicated a consolidation forming a short term target of $3.30 to $3.50.

“The 200-Day SMA of $3.935 poses an immediate challenge,” Dixit said, referring to COMEX copper’s Simple Moving Average.   

He said COMEX copper’s Daily Stochastics showed a positive overlap while its Daily Relative Strength Index pointed upward.

“The mid-term outlook is bullish with limited potential move towards the 100-Week SMA of $4.14, which may be seen on strong acceptance above the 50-Week EMA of $3.86,” Dixit explained, referring to the metal’s Exponential Moving Average.

He added that the broader price outlook remained fragile so long as the monthly settlement on COMEX copper was below the monthly Middle Bollinger Band of $4.15.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.