Dr. Copper is a bellwether commodity that takes the pulse of the global economy at times. These days, no issue facing economic conditions around the globe may be more significant than the trade negotiations going on in Beijing and Washington DC between the US and China.
The price of copper began its ascent in early 2016 when many raw material markets fell to multiyear lows. Copper found a bottom at $1.9355 in January 2016 and over the months that followed, the red metal stages a significant recovery rally. By late 2017, the price of the industrial commodity that is a critical component when it comes to infrastructure building around the world rose to a high at $3.3220 per pound. The rise of 71.6 percent took copper on a bullish ride where the price made higher highs and higher lows and never violated a significant technical support level on its journey to the upside.
As the weekly chart highlights, while copper fell to a higher low in 2018 when the price dropped to $2.9460 in late March 2018 which was still above the support level at the time which stood at $2.9205 per pound on the continuous contract.
Copper then rose to just below the December 2017 high when it hit $3.3155 in June 2018, but the failure to make a new peak lead to a selloff and technical break to the downside in the metal. The June 2018 rally came at a time when a labor action at the world’s largest mine in Chile threatened supplies. However, at the same time, the trade dispute between the US and China was kicking into high gear which led to lower prices for copper and many other commodities. Copper fell below technical support levels eventually reaching prices around the $2.55 per pound level in mid-August 2018 and again in early January 2019. Since then, the price of the red metal has been attempting to make a comeback, and it almost reached $3 per pound in late February but failed and was at the $2.85 level on March 26. The price of copper has been moving higher and lower based on the ups and downs of the trade negotiations. In many ways, copper has become a sentiment indicator for the trade dispute.
The latest decline to $2.85 per pound came on the back of comments that the US would leave tariffs on China in place which caused the recent optimism that a deal was on the horizon to decline. It is likely that an eventual agreement will lead to a rebound in the price of the base metal and could take the price back over the critical psychological level at $3 per pound. However, a breakdown in talks could lead to lower levels and a test of the recent low at the $2.55 level.
When it comes to the trade negotiations, copper could be one of the leading indicators of the current state of talks over the coming weeks. Doctor copper is keeping a close eye on the state of trade between the US and China because the future strength or weakness in the Chinese economy depends on if a deal takes the pressure off economic growth in the Asian nation. Aside from watching the news cycle for the latest tidbits on trade, copper is currently an excellent tool for monitoring the market’s sentiment over the potential for a deal.