What is Copper Telling Us About the World Economy?The presence of such a bearish picture for copper is probably not good news for the global economy and many economists and institutions already expect weaker economic growth over the next quarters.
Many people consider copper to be the leading indicator when it comes to the world’s economy. It makes sense because when the economy booms, construction tends to accelerate as well and therefore, global demand for industrial commodities, such as copper, silver, iron, ore, etc., usually rises. However, if the global economy slows down, construction does too, and the price of these commodities starts to head lower.
If we take a quick glance at copper’s weekly chart, we cannot say anything positive about the world economy. The price created a big triangle pattern in late 2017, which was broken to the downside and shortly afterward copper plunged.
The very same thing is happening again as copper is now forming a triangle pattern and the price is now testing the lower line of this formation. Should the downside break occur again, the bearish trend could be confirmed, with the next target at the 200-week moving average at 2.60 USD and then at the current cycle lows near 2.55 USD. However, as this triangle is a continuation pattern, the price might decline deeper below the 2.55 USD.
The presence of such a bearish picture is probably not good news for the global economy and many economists and institutions already expect weaker economic growth over the next quarters.
Moreover, the US giant Caterpillar – that produces construction machinery – has also warned that the global economy will deteriorate in the near future and the company has slashed the outlook for 2019.
With falling copper, inflation expectations usually head lower and price pressure also tends to dissipate during weaker economic growth. This means that central banks could alter the current hawkish stance to support the economy.
So, what is copper telling us about the world economy? If the latest triangle pattern breaks to the downside, we might expect some downturn globally. On the other hand, should the metal stabilize and rise back above 2.87 USD and/or above 2.95 USD, we could see a brighter picture for the global economy.
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