Copper trading outlook: futures headed for a sizable weekly gain ahead of housing data from the US

Copper futures regained some losses after yesterday the red metal suffered from a reported decline in industrial output in the US. However, overall economic conditions cling towards growth, improving long-term outlooks for copper. Demand in China boosted the metal this week, as construction is in peak season. Next week will feature reports on factory activities from China and the EU.

Copper futures for settlement in July added 0.21% to trade at $3.1510 per pound at 12:00 GMT today on the COMEX in New York. Prices shifted in a daily range between $3.1275 and $3.1595 a pound. Yesterday the contract lost 0.49% as industrial production in the US fell. On Wednesday the metal reached a ten-week high of $3.1780 per pound. So far this week, the contract has added 2.01% as demand in China is picking up.

Yesterday a number of positive reports boosted sentiment for the US economy. The US logged annual CPI at 2.0% for the month of April, while Core CPI was at 1.8%. Monthly figures were at 0.3% for CPI and 0.2% for the core. CPI is a main component of inflation, and nearing the targeted 2.0% annual inflation, which indicates a healthy economy, boosts the dollar and attracts investments towards riskier equities and away from havens.

Elsewhere in the economy, US continuing jobless claims for the week through May 10th stood at 2.667 million, down 9 000, a separate report revealed today. Initial claims were at 297 000, falling from last week’s 321 000, and recording the lowest level since 2007.

US industrial production for April was also reported yesterday. Output was logged to have fallen by 0.6%, behind expectations of leveled growth. Contrasting the decline in industrial output, the New York Empire State Fed Manufacturing Index recorded 19.01 for May, thrashing expectations of a 5.0 figure and rocketing up from April’s 1.29. Philadelphia’s Fed index also exceeded forecasts to log at 15.4.

Later today the US will report major housing data. Forecasts show building permits in April probably grew by 1.8% on a monthly basis, after dropping the previous month. Housing starts are also expected to have added 4.1%. The sector accounts for 30% of copper consumption.

EU and China

Yesterday Germany posted preliminary data for Q1 of 2014, according to which GDP had grown 0.8% on a quarterly basis and 2.5% annually, beating forecasts to score highest since early 2011. However, the Eurozone reported an annual CPI of 0.7% for April and 0.2% on a monthly basis, prompting a retreat for the euro in anticipation of easing by the ECB. Additionally, weak GDP growth results from France, the Eurozone’s second economy, the Netherlands and Italy offset the positive outlooks from the Bloc’s top economy.

In addition to curbing demand outlooks, the negative figures pressured the euro, which increases the cost of importing the metal in the EU, limiting its investment appeal. Next week the Eurozone, which consumes about 14% of the world supply of copper, will report factory PMI for May.

Elsewhere, China, which consumes more than 40% of the world supply of the red metal, is in peak construction period and copper supply is tight, supporting contracts. However, reports of contracting industrial activities have put in question the red metals rally.

“Copper prices have broken out of their recent range, but in the near term I question how much further they can go,” said for Reuters Tim Radford, analyst at adviser Rivkin in Sydney.

The Chinese government indicated that some form of stimulus to the economy might be on the horizon, though officials dismissed the possibility of a large-scale program. Next week will see HSBCs preliminary report for manufacturing activities in China for May. Aprils PMI recorded 48.1, which meant contraction.

Technical view

According to Binary Tribune’s daily analysis, in case Copper July futures manage to breach the first resistance level at $3.1633 per pound on Monday, they will probably continue up to test $3.1822. In case the second key resistance is broken, the industrial metal will likely attempt to advance to $3.1933.

If the contract manages to breach the first key support at $3.1333, it may continue to slide and test $3.1222. With this second key support broken, the movement to the downside will probably continue to $3.1033.