Copper trading outlook: futures reverse gains on weaker euro ahead of key US economic data

Copper futures traded lower before noon in Europe today, after a weaker euro pared earlier gains on growing GDP in Germany. Yesterday the red metal was boosted by the government voicing support for lenders in China. Later today crucial economic data from the US is due, with CPI and industrial production in focus.

Copper futures for settlement in July lost 0.14% to trade at $3.1555 per pound at 12:14 GMT today on the COMEX in New York. Prices shifted in a daily range between $3.1430 and $3.1710 a pound, nearing yesterdays peak. On Wednesday the contract rose by 0.78% on news that China steps in to support lending, reaching a nine-week high of $3.1780 per pound.

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 and exceeding previous results 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 Eurozones second economy, the Netherlands and Italy offset the positive outlooks from the Blocs top economy.

The weaker the euro is, the more expensive it is to import copper in the EU. Additionally, as its main competitor, with every sharp decline in the euro the US dollar rises, which increases the cost of dollar-denominated goods for all foreign currencies.

Previously, China, which consumes more than 40% of total copper supply, sent positive vibes on the market, after yesterday the Peoples Bank of China suggested commercial banks ease lending. The move comes as the housing market, and the economy in general show signs of cooling.

The construction sector, including the infrastructure and power grid development, accounts for more than 60% of total copper consumption in China, while the country consumes more than 40% of the world supply of the red metal. Construction is entering peak season and the government has been purchasing massive amounts of bonded copper.

Later today the US will post several important indicators. CPI is expected to be at 0.3% on a monthly basis and 2.0% annually, after registering, respectively, 0.2% and 1.5% in March. Core CPI, which excludes the volatile food and energy costs, is forecast to have stand at 0.1% on a monthly basis for April, after 0.2% for March, while annually the growth in consumer prices would be at 1.7%.

Industrial production in the States has probably slowed to a near standstill in April, with forecasts of 0.0%-0.1% growth. Meanwhile, the Philadelphia and New York manufacturing gauges for May are projected to stand at 14.0 and 6.0, respectively, from 16.6 and 1.29 the previous month, indicating slightly worsening industrial conditions in Philly and improvement in New York.

Lastly, on Friday the US will log 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%.

Technical view

According to Binary Tribune’s daily analysis, in case Copper July futures manage to breach the first resistance level at $3.1845 per pound on Monday, they will probably continue up to test $3.2090. In case the second key resistance is broken, the industrial metal will likely attempt to advance to $3.2400.

If the contract manages to breach the first key support at $3.1290, it may continue to slide and test $3.0980. With this second key support broken, the movement to the downside will probably continue to $3.0735.