Amidst an encouraging copper price rebound, the market has witnessed a remarkable resurgence, driven by improved sentiment stemming from the People’s Bank of China’s (PBoC) decision to lower short-term lending rates. The PBoC’s proactive measure aims to bolster the Chinese economy’s recovery, instilling optimism for heightened demand and a positive price trajectory in industrial metals, notably copper. This positive development arrives at a pivotal moment, coinciding with the anticipation surrounding the upcoming Federal Open Market Committee (FOMC) decision, which holds substantial implications for diverse markets, including the copper industry.

China’s Efforts to Boost Economic Recovery Support Industrial Metals and FOMC Decision Looms

The PBoC recently announced a reduction in the 7-day reverse repo rate from 2% to 1.9%. This proactive measure signifies the PBoC’s commitment to fostering economic growth and revitalizing key sectors. The decision to lower short-term borrowing costs may stimulate borrowing and investment activities, thereby potentially boosting demand for industrial metals like copper. This aligns with the broader goal of supporting economic recovery and sustaining positive momentum in China’s industrial sector.

In recent months, copper prices witnessed a decline due to concerns over waning demand from China, a major consumer of the red metal. China’s reopening following targeted lockdowns to curb the spread of Covid-19 coincided with a period of below-trend growth in major economies, coupled with relatively high interest rates. These factors collectively contributed to the overall decline in copper prices observed throughout much of 2023.

From a technical perspective, the copper chart reveals a distinctive channel where prices experienced a sharp downward acceleration in response to disappointing Chinese economic data. While some indicators pointed to encouraging figures, others revealed a less favorable picture. For instance, the manufacturing PMI signaled a contraction in China’s largest economic sector, while the Caixin version suggested a return to expansionary territory, with new orders reaching a two-year high.

Despite the recent copper rebound, the ongoing retracement of the April decline has gained momentum. However, the bullish rise is currently encountering resistance at the 50-day simple moving average and the prior swing low around 8442. These levels represent crucial obstacles that copper prices must overcome to sustain their upward trajectory.

Looking ahead, the nearest zone of resistance above the aforementioned levels lies at 8650, while support can be found at 8143, followed by the yearly low around 7867. Traders and investors remain eagerly attentive to the FOMC’s decision on interest rates and updates to its economic projections, as this will provide further guidance on the future direction of copper prices.

The FOMC’s forthcoming decision on whether to maintain rates or potentially signal a hike in July carries significant weight for copper and other commodities. A decision to keep rates unchanged, combined with a slightly weaker dollar, could provide additional support for the ongoing copper price rebound. Moreover, it would align with the expectations of market participants who anticipate a rate pause, fostering increased optimism in the commodity markets.

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Conclusion

In conclusion, the copper market has witnessed a notable resurgence following the PBoC’s decision to lower short-term borrowing costs, which aims to bolster China’s economic recovery. As market participants await the FOMC decision, all eyes are on the potential impact it may have on various markets, including copper. The outlook for copper prices remains closely tied to global economic developments, and traders and investors will continue to monitor the evolving landscape as they navigate this dynamic market.

It is important for market participants to stay informed and analyze key chart patterns, support and resistance levels, as well as upcoming economic data releases. Seeking comprehensive education and guidance can help traders make well-informed decisions in this ever-changing market environment. As the economic landscape evolves, being prepared and adaptable will be crucial for capitalizing on potential opportunities in the copper market.

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