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Risk Off Sentiment Leaves Copper Vulnerable in Near Term

  • Selling pressure on ‘risk on’ commodity copper has been rising in recent weeks after reaching an all-time high at 501 on March 11; hence, investors have been questioning if the recent correction is only starting.
  • Weakening fundamentals (strong deceleration in Chinese economic activity) have been pricing in cheaper copper prices in the near to medium term.
  • For instance, the chart below shows that the China 10Y yield, which could be considered as an alternative barometer of the Chinese economic activity, has been pricing in much lower copper prices.
  • Copper is down 20% since its March all-time high and is approaching its keysupport at 400; with the recession risk surging globally (particularly in Europe), market uncertainty could leave copper prices vulnerable in the near to medium term.
  • Next key support to watch below 400 stands at 388.30, which corresponds to the 38.2% Fibo retracement of the 206 – 501 range (2020/2022 low high).

Source: Bloomberg/MNI

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