ICE Coffee Futures (KC) Technical Analysis – October 27, 2016 Forecast

December ICE Coffee futures ran up early in the session on Thursday, hitting a 20-month high, before profit-takers drove the market lower. The catalyst for the rally was the Robusta coffee futures contract which climbed to a two-year peak. The current rally is being driven this week by optimism over Brazil’s economy and increased fund buying.

Both Robusta and Arabica coffee futures have posted impressive performances this year, however, the Robusta contract has taken over the leadership because of extreme supply tightness due to concerns over crop yields. Drought impacted the last Vietnamese coffee crop, but now heavy rains are threatening to delay the crop’s maturity by slowing ripening.

Technical Analysis

The main trend is up according to the daily swing chart. However, we are seeing signs, during the New York session, that the selling may be greater-than-the-buying at current price levels. We’ve already seen the higher-high so all we’ll need is a lower close to produce a potentially bearish closing price reversal top. This puts the emphasis today on yesterday’s close at $163.70.

An intraday move through $166.40 will signal a resumption of the uptrend. A trade through $155.10 will turn the main trend to down. Crossing back below the previous tops at $163.95 and $162.10 will also indicate increased selling pressure.

The short-term range is $155.10 to $166.40. Its retracement zone at $160.75 to $159.40 is the primary downside target. Since the main trend is up, we could see a technical bounce on the first test of this zone.

Forecast

Based on the current price at 163.60 and the earlier price action, the direction of the coffee market the rest of the session is likely to be determined by trader reaction to the steep uptrending angle at $163.10.

A sustained move over $163.10 will indicate the presence of buyers. Overcoming Wednesday’s close at $163.70 will indicate the buying is getting stronger. This could trigger a retest of the intraday high at $166.40. This is the trigger point for further upside action.

A sustained move under $163.10 will signal the presence of sellers. It will also put the market in a position to form a potential closing price reversal top which could fuel the start of a 2 to 3 day correction.

The selling pressure could increase under $162.10. This could lead to a test of the short-term 50% level at $160.75, followed by the short-term Fibonacci level at $159.40 and a pair of uptrending angles at $159.20 and $159.10.

Taking out $159.10 with conviction could do some serious damage to the chart pattern.

Watch the price action and read the order flow at $163.10 the rest of the session. Trader reaction to this angle will set the tone for the rest of the session.