December ICE Coffee futures are called higher based on Monday’s solid reversal to the upside. The catalyst behind the rally was the weaker U.S. Dollar.
December ICE Coffee futures are called higher based on Monday’s solid reversal to the upside. The catalyst behind the rally was the weaker U.S. Dollar. The market also attracted buyers after testing a key support cluster. The major reason for the rally was the bad weather in Brazil.
Dry weather in Brazil is hurting production of Arabica and Robusta coffee beans. At the same time, too much rain is hampering production of orange juice, while frost is the major concern for sugar growers.
The weather problems in Brazil have drawn the attention of the hedge funds who are pouring money into the soft commodity markets. According to the latest data from the Commodity Futures Trading Commission, investors increased their bullish holdings of Arabica coffee to the highest since October 2014.
TECHNICAL ANALYSIS
The main trend is up according to the daily swing chart. After a two day set-back, the momentum appears to have shifted back to the upside with Monday’s strong reversal pattern. A trade through $147.40 will turn the main trend to down.
On Monday, the market bounced off of a pair of 50% levels at $149.40 and $149.05. The close put the make back on the strong side of the Fibonacci level at $151.10. All of these prices are now support.
The new short-term range is $160.90 to $149.00. Its retracement zone at $155.00 to $156.35 is the primary upside target.
FORECAST
BASED ON THE CURRENT PRICE AT $153.55, THE DIRECTION OF THE MARKET TODAY IS LIKELY TO BE DETERMINED BY TRADER REACTION TO YESTERDAY’S HIGH AT $153.80.
TAKING OUT $153.80 WILL CONFIRM THE REVERSAL BOTTOM. THIS COULD GENERATE ENOUGH UPSIDE MOMENTUM TO CHALLENGE THE SHORT-TERM 50% LEVEL AT $155.00. THIS IS FOLLOWED BY THE SHORT-TERM FIBONACCI LEVEL AT $156.35 AND A DOWNTRENDING ANGLE AT $156.90.
ON THE DOWNSIDE, THE FIRST SUPPORT IS THE MAIN FIBONACCI LEVEL AT $151.10. THIS IS FOLLOWED BY AN UPTRENDING ANGLE AT $150.40.
THE BEST SUPPORT IS THE CLUSTER OF NUMBERS AT $149.40 TO $148.90.
WATCH THE PRICE ACTION AND READ THE ORDER FLOW AT $153.80. TRADER REACTION TO THIS LEVEL WILL DETERMINE THE DIRECTION OF THE COFFEE MARKET TODAY.
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.