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Technical Analysis #C-COFFEE : 2017-01-20

IFC Markets

Lower Brazilian coffee crop estimates support prices
Coffee output forecast of Brazilian official crop bureau estimates output this year may fall to 2015 levels. Will coffee prices continue rising?
The official Brazilian crop bureau Conab forecasts country’s coffee production this year may fall to levels of 2015 due to a natural factor such as alternate lower yield after higher production years as well as fertilizer shortages. It estimates output in the range 43.7m-47.5m 60 kilogram bags, a decline of at least 3.9m bags from last year's record crop, in its first forecast this year. The harvest in 2015 was the lowest in six years due to a drought. Hedge funds increased net long bets on coffee for first time since November: holdings for arabica coffee surged 60% to 13565 futures and options in the week ended January 10, according to US Commodity Futures Trading Commission. This is bullish for coffee prices.

On the daily chart COFFEE:D1 is consolidating after retracing to six-week high on January 12. It bounced off the 50-day moving average MA(50) having breached above it two weeks ago.

  • The Donchian channel is tilted upward, indicating an uptrend.
  • The Parabolic indicator gives a buy signal.
  • The MACD indicator is rising and the gap with the signal line is widening, which is a bullish signal.
  • The stochastic oscillator is falling, edging down from the oversold zone.

We believe the bullish momentum will continue after the price crosses above the last fractal high at 152.69, confirmed also by the upper Donchian bound. It can be used as an entry point for a pending order to buy. The stop loss can be placed below the Parabolic signal at 144.01. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level (144.01) without reaching the order (152.69) we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Summary of technical analysis:

Position Buy
Buy stop Above 152.69
Stop loss Below 144.01

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Source: https://www.ifcmarkets.com/en/technical-analysis/coffee/2017-01-20?utm_source=financemagnates
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