Coffee, Weekly
It’s been a year since my last analysis Coffee futures market. At the time Coffee was trading at $142.10 and I gave three targets of which lowest was at $115. Coffee hit all those targets and turned higher at $111.05, in the scheme of things very close to my $115 target level. The theme in my 2015 coffee analyses was shorting the market but now a year later it’s time to start looking at the long side as both technical and fundamental reasons suggest this market is tightening over the coming months.
In March coffee futures rallied over 16% on the dry weather forecasts that prompted Brazil the second biggest producer to cut its forecast for the next harvest to levels well below consensus estimates. There’s actually been a drought in the top Brazilian coffee production region, Espirito Santo. This has led to banks raising their target prices for the coffee futures, adding to the bullish sentiment in coffee but at the same time the fact remains that the coffee rallies are vulnerable to any news on new large crops.
Technically the rally in prices seen in March was significant. It was the first time since October 2014 that the price of coffee was able to rally above the upper weekly Bollinger Bands. This was a clear breakout from the trading range and triangle formation that have kept the prices from advancing since November 2015 and suggests that the bottoming process is now nearing the end. Price declined back to the 30 period moving average and $121 support level created by weekly candle highs in February. This week’s price action has stayed above the support.
Coffee, Daily
In the daily chart we can see how the price of coffee dropped down to $121.13 support that coincided with the 61.8% Fibonacci retracement level. From this level price has bounced again today which means that we have a successful retest in place. The 38.2% Fibonacci level at $126.62 is a minor resistance while the sideways move above $131.64 could prove to be a tougher level to penetrate. If today’s close is above $122.50 we have a bullish pin bar in the daily chart, which could be seen as a confirmation of the bullish view on the price of coffee.
Conclusion
As we have the dry weather causing draught in the important coffee producing regions in Brazil the prices are likely to be supported on the fundamental basis over the coming months. At the same time the technical picture supports long trade ideas on coffee. If market manages to create a bullish pin bar today, we have a potential lift-off that could take the prices to at least $126.60 resistance but possibly further to $131.60 resistance near the recent high. These are short term targets while in the longer term picture (over several weeks) price could move to August 2015 highs and a likely significant resistance at $140 dollars.
Janne Muta
Chief Market Analyst
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
Traders and fund managers from around the world have benefited greatly from Janne’s technical analysis methods. The indicators and price action based trading models he has developed, have, after rigorous testing, proven to be invaluable in identifying high probability trades.
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