September Comex High Grade Copper futures continued their bullish move on Wednesday with the market within striking distance of a three-month high, boosted by a steep drop in the U.S. Dollar, signs of a tighter supply and optimism over Chinese demand.

The U.S. Dollar Index reached its lowest level since last November, making dollar-denominated copper more attractive to foreign buyers.

Copper was also supported by signs that supply is shrinking as exchange inventories fall and amid indications of solid demand in China. Traders are saying that as we head into the summer, they expect to see more capacity reductions in China to meet environmental restrictions, and they think consumers are buying copper in anticipation of this.

The copper market is recovering nicely from recent weakness. The market may have gotten ahead of itself in the first quarter due to President Trump’s promise of increased infrastructure spending so a sell-off was necessary to knock-out some of the weaker longs.

Technical Analysis

The weekly chart is a very clean chart and it best shows how much the market has advanced over the last two months and how much upside potential is still left.

The main trend is up according to the weekly chart. The current upside momentum has put the market in a position to challenge the next main top at $2.7425. Taking out this top will reaffirm the uptrend and could generate enough upside momentum to challenge the high for the year at $2.8495.

The main range is $2.8495 to $2.4850. Its retracement zone at $2.6675 to $2.7105 is currently being tested. Trader reaction to this zone will tell us if we are going higher, or if we are going to produce a secondary lower top.

Forecast

Based on Wednesday’s close at $2.6760, the direction of September Comex High Grade Copper the rest of the session is going to be determined by trader reaction to the 50% level at $2.6675.

A sustained move over $2.6675 will indicate the presence of buyers. This could create enough upside momentum to challenge the Fibonacci level at $2.7105. We could see selling on the initial test of this level, but if buyers take it out with conviction then look for the rally to extend into the main top at $2.7425 then the downtrending angle at $2.7545.

The weekly chart opens up again on a move over $2.7545 with potential target angles coming in at $2.8020 and $2.8260.

A sustained move under $2.6675 will indicate the presence of sellers. This could trigger a fast move into $2.6595 and $2.6250. Look out to the downside if $2.6250 fails as support, we could see a steep sell-off.