ICE Coffee Futures (KC) Technical Analysis – August 29, 2016 Forecast

December ICE Coffee futures surged on Friday as speculators regained control on the notion that unseasonably early rains in Brazil could lead to premature flowering, making the plants vulnerable to unfavorable weather in coming months.

Traders were also watching the spread between Robusta coffee and Arabica coffee. High supplies in Asia are putting pressure on Robusta while concerns over next year’s crop are helping to underpin Brazilian-grown Arabica coffee.

The market also posted a volatile two-sided trade tied to the wild swing by the U.S. Dollar. Coffee is a dollar-denominated commodity so a stronger dollar tends to put a cap on prices while a weaker dollar tends to underpin the market.

The dollar’s volatility was fueled by comments from Fed Chair Janet Yellen and Fed Vice Chair Stanley Fischer regarding the timing and frequency of the next Fed rate hike.

Technically, the main trend is down according to the daily swing chart. Once again investors challenged the main top at $147.90, but fell short of taking it out when sellers came in at $147.60. A trade through the main top will turn the main trend to up.

The main range is $157.65 to $137.85. Its retracement zone at $149.05 to $151.10 is the primary upside target. A downtrending angle passes through this zone at $150.15, making it a valid target also.

Based on Friday’s close at $144.85, the direction of the market will be determined by trader reaction to the uptrending angle at $145.85.

The inability to overcome $145.85 will signal the presence of sellers or weak buyers. This could drive coffee futures back into a cluster of potential support at $142.90, $142.65, $141.85 and $141.60.

If buyers can overcome the uptrending angle at $145.85 then look for the market to strengthen. This could create enough upside momentum to challenge the closing price reversal top at $147.80, the main top at $147.90 and the main 50% level at $149.05.

We’re going to watch the price action and read the order flow at $145.85 today since this angle will tell us if the buyers or sellers are in control. Look for the upside momentum to increase if the rains in Brazil continue to encourage speculative buying.