As with any asset, when the price is higher, there is more demand. When the price is lower, there is less demand. Copper is used in many manufacturing products such as wire, tubing, industrial equipment, and plumbing. When the price is high (demand is high), the world economy is thought to be doing well as manufacturing is usually moving at a solid pace. When the price is low (demand is low), the world economy is thought to be doing poorly as manufacturing most likely has slowed. Hence, the base metal is often referred to as Dr. Copper, in that it gauges the strength of the economy.

If one is to look at a daily chart of the price of copper since mid-2018, its easy to see that the world economy has been fairly steady, albeit steady at a slow pace. Price has generally traded between roughly 2.50 and 3.00 over that time period, with the 200 Day Simple Moving Average around 2.70.

- advertisement -

On a 240-minute chart over the last 2 months, we can see that copper had gone bid into the US-China trade agreement. Price traded from a low of near 2.42 on December 4th to a high of 2.88 on January 16th, a day after Phase One of the US-China Trade Deal was signed. However, on January 20th, as news began so spread of the new Coronavirus, copper began to trade lower. In the days to follow, as new cases began showing up around different cities in China, and then around the world, the decline in the price of copper began to accelerate. People feared (and still do) that the spread of the coronavirus will cause and economic slowdown in China and possibly elsewhere. Copper has given up all its pre-trade agreement gains, and then some (green line). Price and the RSI are currently diverging.

On a 60-minute timeframe, you can see that selloff from the time of the trade deal signing to current. Notice how strong the divergence is between RSI and price.

BE CAREFUL, when variables (coronavirus) are entered into price action, one cannot rely on technical alone. If the virus continues to spread copper may continue lower, especially is there are stops built up under 2.50!

Previous articleFOMC Preview: Will Powell Open The Door To A Summer Rate Cut?
Next articleAsia Morning: Markets Bounce But How High?
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.


Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.