Copper has lost 62% of the gains it made off 2022's second half rally. Its RSI, a measure of its momentum, is on the bearish side of 50, suggesting the industrial metal's momentum is to the downside.
Copper (top chart) is tracking the CHN50 index (middle chart). Both instruments have charted a lower peak followed by a lower trough. I.e., both instruments are trending down. The bottom chart shows the correlation coefficient between copper and the CHN 50, which is reading 80% and showing a strong positive relationship between the two. Thus, we can see that the fortunes of copper are very much reliant on the direction of the CHN50.
When it comes to copper, China is the biggest consumer in the world. It uses more than half of global supply. A large part of copper's 2022 really in the second half was based on the reopening of China.
However, the data out of China suggests that economic momentum is waning. The manufacturing PMI released today was disappointing at 48.8, which was lower than the estimate of 49.5. A reading below 50 implies a contraction.
Also, other releases have disappointed recently. China CPI for April was 0.1% y/y, lower than the expected 0.3% and a drop from 0.7% from the previous print. This was the slowest pace since 2021. In addition, industrial production was at 5.6% y/y, only near half the 10.9% y/y that was forecast.
Demand is diminishing and the intial boost from China's reopneing looks to be fading - copper is feeling the pressure.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.