ICE Coffee Futures (KC) Technical Analysis – December 9, 2016 Forecast

March ICE Coffee futures are expected to remain under pressure on Friday due to the strengthening U.S. Dollar which is hurting the Brazilian Real while encouraging heavy farmer selling to avoid further losses. The dollar is picking up a bid because of the action on Thursday by the European Central Bank and expectations of Fed monetary policy action next week.

On Thursday, the European Central Bank weakened the Euro after it decided to cut its monthly asset purchases but extend the program until the end of 2017. This helped boost the U.S. Dollar along with expectations for a 25-basis point rate hike by the Fed next week.

Fundamentally, coffee prices continue to be pressured by increasing supply, low exports and improving growing conditions in key area. Heavy fund liquidation is also weighing on prices.

Technical Analysis

The main trend is down according to the daily swing chart and well as momentum. We’ve entered bear market territory as measured by conventional technical analysis. Traditional oscillators and indicators are also saying the market is oversold.

The oversold condition doesn’t seem to be bothering the sellers who are going to continue to pressure the markets until the weakest long is driven out of their positions.

Potential downside targets include the May 4 bottom at $140.25 and the June 13 bottom at $138.85. If this price fails then look for a possible steep sell-off into the next two levels at $128.15 and $126.00.

On the upside, the major Fibonacci level at $146.45 is the first target. This is the trigger point for a possible surge into the major 50% level at $152.75.

Forecast

The stronger dollar is likely to push prices even lower on Friday. I’m looking for sellers to take out the May 4 main bottom at $140.25 fairly easily with the June 13 main bottom at $138.85 the next likely target. If this bottom fails then look for an acceleration into a pair of angles at $135.60. Crossing to the weak side of this price cluster will put the coffee market in an extremely bearish position.

I don’t think even a shift in the supply/demand fundamentals will help this market. Right now it all seems to be about the U.S. Dollar. Sure, we may see some short-covering rallies, but I don’t think we’ll see a sustained rally until the U.S. Dollar keeps rising.