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Copper firm on demand recovery expectations, weaker dollar

By Pratima Desai

LONDON, July 27 – Copper prices ticked up on Monday, driven by a weaker dollar and expectations of a global demand recovery, but uncertainty about consumption in top consumer China capped gains.

Benchmark copper on the London Metal exchange traded up 0.1% at $6,421 a tonne at 1556 GMT.

Prices of the metal, which is used as a gauge of economic health by investors, are up nearly 50% since hitting four-year lows in March when markets tried to price in the demand impact of COVID-19 lockdowns.

Citi analyst Oliver Nugent said the market needed evidence of physical demand.

“Speculative money buying derivatives betting on a copper demand recovery has been able to influence the price. Copper has been trading like a forward-looking asset, like an equity,” he said.

DEMAND: Markets will scrutinise surveys of purchasing managers at manufacturing companies around the globe, due later this week and early next week, for clues to future demand.

DOLLAR: The dollar’s trade-weighted index against a basket of currencies has fallen around 9% since March 20.

A weaker U.S. currency makes dollar-denominated metals cheaper for holders of other currencies, which could boost demand. This is a relationship used by funds to generate buy and sell signals from numerical models.

TENSIONS: Escalating tensions between the United States and China are expected to depress sentiment.

SPREADS: The premium for the cash over the 3-month copper contract <CMCU0-3> has narrowed. But at $7 a tonne, it still suggests concern about supplies on the LME market where stocks are at 7-month lows <MCUSTX-TOTAL>.

Large holdings of copper warrants and nearby contracts have further fuelled that worry <0#LME-WHL><0#LME-WHT><0#LME-WHT>.

TECHNICALS: Copper faces upside resistance at $6,655, a Fibonacci retracement level of the slide from June 2018 to March this year.

OTHER METALS: Aluminium rose 0.6% to $1,710 a tonne, zinc gained 0.7% to $2,235, lead added 2% to $1,855, tin was up 2% to $18,010 and nickel climbed 0.5% to $13,725. (Reporting by Pratima Desai; editing by Susan Fenton/Barbara Lewis/Jane Merriman)

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