Copper – Will U.S. rate hike fear put pressure again or not?

A shocking rate hike decision by the Bank of England and hawkish Federal Reserve signals which pushed up fears of tighter monetary conditions, resulted in selling pressure in copper prices yesterday.

Copper prices slipped its three-day high as hawkish signals from major central banks drove up concerns over slowing economic growth this year, which bodes poorly for copper, given that demand for the red metal is tied to industrial activity.

The U.S. dollar strengthen against its major currencies as Federal Reserve Chair Jerome Powell suggested more U.S. interest rate hikes may be needed to curb inflation.

The BoE announced a half-point rate hike to 5%. Though the size of the hike surprised markets, expectations for BoE rate tightening surged in recent days, putting pressure on the prices.

Adding to this, an interest rate cut by China provided only a limited boost to the red metal, which was now down 0.5% for the week.

Copper prices in London fell after hitting a two-month high earlier as a stronger dollar offset support coming from a sharp reduction in available stocks in warehouses registered with the London Metal Exchange (LME).

However, LME inventory for the metal used in power and construction (MCUSTX-TOTAL) has been low for a while and the big jump in cancelled LME warrants on Thursday has further reduced the amount of available material.

In top metals consumer China, copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 1.1% this week.

Chinese markets are closed on Thursday and Friday for the Dragon Boat Festival, but sentiment there has been weighed down by a lack of meaningful economic stimulus that could support growth in demand for metals.

Technical Outlook

Copper prices retreated from the four-week high 736.60 and settled at 726.60 yesterday. Since 16 June 2023, prices have been struggling to break their massive resistance of 738.50 and consolidate below it.

Yesterday prices retreated from the day’s high 736.60 and settled at 726.95, down by 0.73%.

On the above chart, prices trading on the verge of crucial support 722.50 a break below it may confirm the downside momentum in the near future. Furthermore, RSI and MACD are signalling downside momentum.

Hence, its expected that Copper prices may retreat towards immediate support and a break below 722.50 will lead pressure towards 717.50-714.00 again.

Alternatively, prices will expect to consolidate between 723.50-736.00 levels in days to come.