July 21, 2016

IFC Markets, Technical Analysis #C-COFFEE - Weather affects markedly coffee crop and prices

This article is originally referred from IFC Markets Technical Analysis.

Brazil has been recently having favorable weather for agriculture. Following the forecasts of a large sugarcane crop, coffee production forecasts are getting revised upward. Brazil grows a third of world coffee crops. Cooxupe, the largest coffee cooperative in the country, said that coffee crop harvest had been completed in 51% of plantations. It is noticeably more than 34,2%, which was harvested at the same time last year. Will the coffee prices fall?

Over the last 2 months, its prices rose by almost a quarter. One of the reasons for this was the largest strike of truck drivers in Columbia, which could hinder exports. The Colombian Coffee Growers Federation published its forecast on Wednesday. This year, Columbian coffee supply in the world market could be 12,5 million of 60kg sacks, which is not much less than the last year’s export which was 13 million sacks. According to the Colombian Coffee Growers Federation, the strike will not have significant impact upon coffee sales. A considerable part of market participants is expecting the increase of coffee crops in Columbia this year to 14, 5 million sacks from 14, 2 million sacks in the last year. If their forecasts turn to be right, then the export may increase as well. Last week, coffee prices began to decline from their 16- month high after the American Green Coffee Association announced that the green coffee stock in the USA reached 13-year high in June: 6,21 million sacks.

ifc markets Weather affects markedly coffee crop and prices

On the daily chart Coffee: D1 has approached the support level of the rising trend. MACD indicator has formed a signal to sell.Parabolic indicator has not reversed down and its signal to buy may serve as an additional support level. The Bollinger bands have widen significantly which means high volatility. RSI indicator is above 50 and has formed a negative divergence. The bearish momentum may develop in case coffee falls below the support level of the rising trend, Parabolic signal and the last fractal low at 146.This level may serve as a point of entry. The initial stop-loss may be placed above the last fractal high and the 16-month high at 156. After opening the pending order we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 156 without reaching the order at 146, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Position Sell
Sell stop below 146
Stop loss above 156

Original Source: IFC Markets Technical Analysis

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