Copper Correcting

Copper prices are seeing heavy selling pressure on Wednesday as a rebound in the US Dollar fuels a short squeeze from recent record highs. Copper futures have shed around 4% from the fresh peak recorded earlier in the week and with strong bearish divergence in momentum studies, risks of a deeper pullback are growing.

Fed Easing Pushback

A drop in US inflation, reported last week, had sparked a sell-off in USD, creating fresh demand for copper prices. However, with several Fed members since that release seen pushing back against near-term rate-cut expectations, USD is now recovering those losses, weighing on risk markets an commodities, including copper.

FOMC Minutes Due

Looking ahead today, the release of the FOMC minutes will be the big market focus. If the tone of the meeting is seen echoing the sentiments we’ve heard from Fed members in recent days (rates need to remain high for longer, inflation still not there,) this should drive the USD recovery higher, weighing on copper prices further.

Bullish Drivers Remain

Supply concerns have been a major driver of the rally in copper prices this year. With demand rising in China and supply levels still subdued on the back of the pandemic, there remains broad support for copper meaning that any pullback from here should find support from longer-term players for a resumed rally medium term.

Technical Views

Copper

The rally has stalled for now just atop the 5.0370 level with price since reversing back under the level and back inside the bull channel. Focus is now on a test of support at the bull channel lows and 4.84 structural support. While this area holds, the bullish outlook remains. Below there, risks of a deeper pullback towards 4.5785 are seen.