Copper price forecast: time to buy the dip or sell the rip?

Copper price has parred some of its recent losses as the US dollar remains subject to a profit-taking mood. Even so, it appears set to continue on its losing streak amid a stronger greenback and Chinese demand woes. After retesting its three-month low late last week at $4.12 per pound, COMEX futures rebounded to $4.1540 as at the time of writing.

US Dollar index is soaring

Late last week, COMEX copper futures hit a three-month low as the US dollar extended its rally to a fresh one-year high. Granted, the subsequent greenback’s downward correction has yielded a slight rebound for the red metal. Nonetheless, it remains on a losing streak; having been in the red for six out of the past seven weeks.

As is the case with other dollar-priced assets, a stronger greenback makes copper more expensive for buyers holding foreign currencies.  The dollar index, which measures the value of the greenback against a basket of six major currencies, has been in the green for seven consecutive weeks. Last week, it hit a level last recorded on 1st November 2023 at $107.05. Granted, the profit-taking mood has yielded a pullback to $106.45 as at the time of writing. 

The Trump win, safe haven demand, and bets on the Fed’s further rate cuts are the key drivers of the dollar’s rally. To start with, investors are betting on the incumbent president’s policies on trade and foreign relations to support the currency. 

In regards to the Fed’s rate-cutting cycle, investors are increasingly betting for a more gradual approach. This follows Jerome Powell’s recent remarks indicating that the US economy is doing “remarkably” well. Besides, a rise in geopolitical tensions between Russia and the West has bolstered the demand for the dollar and other safe-haven assets.   

Chinese demand

The announcement of a super-sized stimulus package by the Chinese government in late September saw copper prices jolt to a four-month high. However, subsequent briefings on the government’s efforts to bolster the economic growth have been underwhelming for investors. 

In the latest stimulus package announced close to two weeks ago, the NPC standing committee approved bills permitting the country’s local administrations to allocate $1.40 trillion (10 trillion yuan) in curbing their debt risks.

While the measures were in line with analysts’ expectations, investors were hoping for a more aggressive package; especially with a Trump win. In fact, the timing of the NPC’s announcement, just three days after the US presidential elections had people optimistic of additional fiscal buffers in the event of a Trump presidency. 

China’s sluggish economic growth has been weighing on copper prices in recent months with COMEX futures dropping by about 20% over the past six months. Notably, the red metal has vast uses in the construction and industrial sectors. Besides, it is considered a barometer for economic growth. As such, woes over the globe’s second-largest economy and leading importer of industrial metals remains a key headwind for the commodity’s market.

In the near term, copper price will remain particularly sensitive to any news on China’s stimulus measures. This includes the impact of the already announced rounds of stimulus. Data released last Friday by the National Bureau of Statistics indicated that the country’s retail sales rose by 4.8% in October compared to the previous year; the strongest pace since February 2024. Even so, industrial output increased by 5.3% compared to the forecasted 5.6%. 

In addition to the country’s struggling property market and weak consumer confidence, Trump’s policies are seen as yet another driver of China’s economic growth. There are uncertainties over what Trump’s presidency will mean for global trade; especially since China’s economy is heavily reliant on exports. During his campaigns, the incumbent president vowed to place a blanket tariff of 60% on China’s exports to the US.   

Copper price analysis

On the weekly chart, we see that the price of copper has dropped sharply in the past few weeks. It has dropped from $5.16 in May to $4.2. It has dropped below the key support at $4.35, its highest point in January this year. 

Copper has also tumbled below the 50-week moving average, and is hovering slightly above the 100-week MA. It is also between the 38.2% and 23.6% Fibonacci Retracement level.

Therefore, with the ongoing geopolitical issues, there are signs that the price of copper will continue falling as sellers target the support at $4, which is along the ascending trendline shown in blue. This line connects the lowest swings since July 2022.

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