Copper price set for a fresh year-to-date low

Copper price has extended losses from the past two weeks into the new week. A strong US dollar and concerns over Chinese demand have continued to weigh on the red metal. At its current level, it has retested the year’s lowest level, which was hit in late January at $4.3145. As the outlook remains bearish, it will likely reach a fresh year-to-date low in the short term.

Week’s price drivers

Copper price remains under pressure for the third week in a row amid a strong US dollar.The greenback has been boosted by heightened expectations of an aggressive policy tightening by the Federal Reserve. In the Fed meeting scheduled for mid this week, the central bank is expected to increase interest rates by 50 basis points. As stated by St. Louis Fed President, James Bullard in a recent interview with Bloomberg, a hike of 75 basis points in coming months cannot be dismissed.  

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Similar to other commodities, copper price tends to move inversely to the value of the US dollar. Seeing that an environment of higher rates is set to strengthen the currency, the red metal will likely remain under pressure in the short term.

Besides, investors remain concerned over China’s economic growth outlook. The Middle Kingdom, which is the top consumer of copper and other industrial metals, has been grappling with a fresh COVID-19 wave in recent weeks. Following the imposed lockdowns, data released on Sunday showed that factory activity in the country contracted for the second consecutive month to its lowest level since February 2020.

Copper price forecast

Copper price has begun the new week on a wrong footing; extending last week’s losses. After hitting a high of 4.8455 two weeks ago, COMEX copper futures have since dropped by over 10% to 4.3145 as at the time of writing. At that level, it is trading at its lowest level in three months.

On a daily chart, it is below the 25 and 50-day exponential moving averages. It is also at the periphery of the oversold territory with an RSI of 30. Besides, it has formed a mini- death cross with the short-term 25-day EMA crossing over the medium 50-day EMA to the downside. Based on both the fundamentals and technicals, I hold a bearish outlook in the short term.

In particular, I expect copper price to continue trading below the critical level of 4.5000 in the ensuing sessions.  Amid a strengthening US dollar, it will likely remain within the range of 4.3550 and 4.2420. A corrective rebound may have it hit the resistance level of 4.4515 before pulling back to the aforementioned range. As the week progresses, a stronger US dollar may give the bulls an opportunity to push copper price to the lowest level year-to-date at 4.1815.