Sergey Kamenshikov, Ph.D.
IFC Markets
Drought in Columbia
Brazil has cut its coffee export in January 2016 by 8.8% compared to the January last year and by 16.5% compared to last December. Market participants worry the crops in Columbia may suffer due to the droughts. Will this push the coffee prices up?
Three weeks ago coffee hit a fresh 2-year low and now its prices are struggling for growth. According to the U.S. Commodity Futures Trading Commission. It has been contracting for two weeks having reached the 4-week low. This week many coffee producers are on holidays due to the carnival in Brazil and the Lunar New Year in Vietnam. Some market participants believe the prices fell on Friday and Monday due to the pre-festive sales. Their further dynamics will depend on the weather in Latin America and Vietnam which are the main regions of coffee production. This January Columbia increased its production by 4% compared to the same period of 2015, and by 16% to 14.2mln 60kg bags since February 2015 to January 2016. These data are already priced in. The drought and the probable revision down of the crops outlook may push prices up. According to the polls, the majority of the markets participants expect the 3mln bags deficit of coffee in the global markets in 2015/16 season which is to last till this September. If the forecast comes true, it will be the first deficit since 2009/10 when the prices rose almost threefold.
Coffee
On the daily chart Coffee: D1 is in downtrend but is struggling for growth from the resistance of the channel. The MACD and Parabolic indicator give buy signals. The RSI is neutral and below 50, no divergence. The Bollinger bands have contracted which means lower volatility. The bullish momentum may develop in case coffee surpasses the last fractal high, the Bollinger band and the 200-day moving average at 126.5. This level may serve the point of entry. The initial risk-limit may be placed below the Parabolic signal, Bollinger band and the second fractal low which is the 2-year low at 112.4. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger 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 112.4 without reaching the order at 126.5, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position Buy
Buy stop above 126.5
Stop loss below 112.4
Brazil has cut its coffee export in January 2016 by 8.8% compared to the January last year and by 16.5% compared to last December. Market participants worry the crops in Columbia may suffer due to the droughts. Will this push the coffee prices up?
Three weeks ago coffee hit a fresh 2-year low and now its prices are struggling for growth. According to the U.S. Commodity Futures Trading Commission. It has been contracting for two weeks having reached the 4-week low. This week many coffee producers are on holidays due to the carnival in Brazil and the Lunar New Year in Vietnam. Some market participants believe the prices fell on Friday and Monday due to the pre-festive sales. Their further dynamics will depend on the weather in Latin America and Vietnam which are the main regions of coffee production. This January Columbia increased its production by 4% compared to the same period of 2015, and by 16% to 14.2mln 60kg bags since February 2015 to January 2016. These data are already priced in. The drought and the probable revision down of the crops outlook may push prices up. According to the polls, the majority of the markets participants expect the 3mln bags deficit of coffee in the global markets in 2015/16 season which is to last till this September. If the forecast comes true, it will be the first deficit since 2009/10 when the prices rose almost threefold.
Coffee
On the daily chart Coffee: D1 is in downtrend but is struggling for growth from the resistance of the channel. The MACD and Parabolic indicator give buy signals. The RSI is neutral and below 50, no divergence. The Bollinger bands have contracted which means lower volatility. The bullish momentum may develop in case coffee surpasses the last fractal high, the Bollinger band and the 200-day moving average at 126.5. This level may serve the point of entry. The initial risk-limit may be placed below the Parabolic signal, Bollinger band and the second fractal low which is the 2-year low at 112.4. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic and Bollinger 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 112.4 without reaching the order at 126.5, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position Buy
Buy stop above 126.5
Stop loss below 112.4
This overview has an informative character and is not financial advice or a recommendation. IFCMarkets. Corp. under any circumstances is not liable for any action taken by someone else after reading this article.
Recommended Content
Editors’ Picks
EUR/USD holds above 1.0700 ahead of US jobs report
EUR/USD stays in a consolidation phase above 1.0700 after closing the previous two days in positive territory. Investors eagerly await April jobs report from the US, which will include Nonfarm Payrolls and Unemployment Rate readings.
GBP/USD advances to 1.2550, all eyes on US NFP data
The GBP/USD pair trades on a stronger note around 1.2550 amid the softer US Dollar on Friday. Market participants refrain from taking large positions as focus shifts to April Nonfarm Payrolls and ISM Services PMI data from the US.
Gold remains stuck near $2,300 ahead of US NFP
Gold price struggles to gain any meaningful traction and trades in a tight channel near $2,300. The Fed’s less hawkish outlook drags the USD to a multi-week low and lends support to XAU/USD ahead of the key US NFP data.
XRP edges up after week-long decline as Ripple files letter in reply to SEC’s motion
Ripple filed a letter to the court to support its April 22 motion to strike new expert materials. The legal clash concerns whether SEC accountant Andrea Fox's testimony should be treated as a summary or expert witness.
US NFP Forecast: Nonfarm Payrolls gains expected to cool in April
The NFP report is expected to show that the US economy added 243,000 jobs last month, sharply lower than the 303,000 job creation seen in March. The Unemployment Rate is set to stay unchanged at 3.8% in the same period.