Date: 25 Oct 2018

Chinese demand continues to drive copper prices as investors continue paying special attention to China’s economic data. Although, there are growing concerns of slowing demand in China in the wake of the trade war with the US and escalating geopolitical tensions over the assassination of the prominent Saudi journalist – Jamal Khashoggi.

The Chinese gross domestic product fell to 6.5% year-on-year in the third quarter of 2018, compared to a 6.7% growth registered in the previous quarter and coming up short from analysts’ expectations of 6.6%. It was the lowest growth rate since the first quarter of 2009 during the global financial crisis, amid intense tariff dispute with the US.

The US has imposed three rounds of tariffs on Chinese products this year, totaling $250bn worth of goods. The first two rounds placed 25% tariffs on $50bn worth of imports from China, and Beijing retaliated generously. In September, the US intensified the trade war with another set of tariffs, this time on Chinese goods worth $200bn.

Since the beginning of the year until last Wednesday close, the copper price is underwater with a loss of over 16.5% and since the start of October, the metal as dropped almost 2.0%. Nonetheless, the weekly outlook ended in the red with a loss over 1.0% and on the daily basis closed nearly 0.5% in the red, furthermore, it remains in a recovery phase since mid-September.

On yesterday session, copper initially rose with a wide range but found enough selling pressure near 280.35 to trim all of its gains back to the market and closed near the low of the daily range, in addition, managed to close below Mondays’ low, which suggests a strong bearish momentum.

The stochastic is showing lack of momentum but remains below the 50 midline. Since the strong rally made in mid-September that came to a stop near a key level at 286.65, the commodity has been in a choppy downward correction that suggests the development of a potential bullish flag. A bullish flag is a continuation pattern that develops when the price rallies sharply, and then moves sideways or slightly to the downside, which seems to be the case at hand. Also providing some dynamic support is the 50-day moving average that seems to be a good turning point.

Next week, on Wednesday at 00:00GMT (7:00 PM ET) China Federation of Logistics and Purchasing (CFLP) will be releasing the Chinese Manufacturing Purchasing Managers Index (PMI) for October. The previous number was 50.8, any reading above 50 signals expansion. A reading below 50 should have a negative impact on copper since it shows a slowing demand for the commodity in China.

 

Copper: Potential bullish flag amid geopolitical tensions and intensifying trade wars

 

Copper is a widely used commodity in construction and electronics.  Today, China is still responsible for over 40% of global copper demand, with the US and EU following as the next most prominent buyers of the metal. With an expanding urban population, India is also worth noting as a major copper consumer.

 

Copper: Potential bullish flag amid geopolitical tensions and intensified trade wars

Copper Daily Candlestick Chart 

 

Written by Hugo O’Neill, External Analyst

 

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