Copper fighting back, but rebound proves risky given recessionary backdrop

Copper enjoys a welcome respite from selling pressure

High Grade Copper has been hit hard over the course of the second quarter (Q2), with the industrial metal hit hard as fears grow around a global recession. While we have seen that selling pressure continues to take hold over the course of this month, the bulls have started to push higher once again as we close out the month.

Dr. Copper flashes red as recession fears grow

The price of Copper has long been perceived as a barometer of global economic health, with demand for the industrial metal helping to determine economic activity in China and abroad. The close ties between Chinese growth and Copper prices do point toward the fact that the slowdown in growth thanks to zero Covid-19 policies in the country have helped drive the price of industrial metals such as copper lower.

Unfortunately, while China is gradually transitioning towards a Covid-19 framework which could be more pro-growth, we are seeing Western nations move towards a potential recessionary environment. The Chinese relationship with Russia should help alleviate the kind of impact seen for nations such as Germany, which has seen energy prices skyrocket as trade with Russia slumps.

Interestingly, the chart below highlights how the Australian dollar (AUD) and Chinese growth are highly correlated with copper prices. Being one of the main mining hubs in the world, the Australian economic picture will typically move in tandem with commodity prices. With that in mind, it makes sense to watch out for the trajectory of the AUD as a gauge of where we could see copper move.

AUD-Copper correlation signals potential weakness

That relationship with the AUD highlights how both markets are influenced by similar factors. The gains we have seen over the course of the past fortnight have provided respite to the selling pressure. However, the downtrend clearly remains in play over the daily timeframe, with the price expected to roll over once again in the near future. A break up through $0.7283 swing high would be required to negate that bearish outlook.

Copper rebounds from Fibonacci support

High Grade Copper prices have managed to reverse upwards from the 61.8% Fibonacci support level at 31396. That bottom took place just a day after the AUD/USD bottom, with both moving higher in tandem since. The wider trend evident on the monthly chart bring confidence that will see better days return once again despite recent weakness. However, the question of whether we have bottomed out at this Fibonacci level remains key given the continued headwinds ahead for the global economy.

On the four-hour chart, we can see that while the price continues to move higher, we remain some way off recovering the June peaks. The break up through trendline resistance does provide the basis for a period of strength, with further upside expected while the price continues to create higher lows. A rising trendline helps bolster support for further upside, with a positive short-term outlook in place until we see a move back below 32540.