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ICE Coffee Futures (KC) Technical Analysis – August 3, 2016 Forecast

Coffee tried to rally on Tuesday, but ran into sellers at the 20-Day Moving Average, triggering an intraday sell-off and eventually a lower close. The cash market was mixed with Arabica coffee futures finishing lower and Robusta coffee futures closing slightly better. The upside was being controlled by a bearish report from Brazil which indicated a bumper crop this year.

The reaction to the news from Brazil was not a surprise. However, traders should note that this kind of news typically leads to a sharp break. This didn’t occur because most of the major coffee players still believe that the coffee market will end this year in a deficit, for the first time in six-years. According to recent industry data, on average, the coffee market is expected to finish 2015/2016 with a 250,000-bag deficit with Arabica output pegged at around 45 million bags and Robusta at 12 million bags.

The direction of the U.S. Dollar has also been influencing the price action lately. While Robusta coffee supplies have been hit by El Nino related dryness in Southeast Asia and drought in Brazil, and Arabica supplies have been recovering in Brazil following a few seasons of drought, farmers have been holding back on supplies due to the fluctuations of the U.S. Dollar/Brazilian Real.

At the start of the year, the Real was weak against the U.S. Dollar encouraging farmers to sell coffee, but with the dollar weakening, farmers have been holding on to their supplies.

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Technically, the trend is down according to the 20-Day Moving Average chart. The inability to cross to the bullish side of the moving average indicates the presence of sellers. Essentially, the indicator at $145.34 is acting like a pivot.

A sustained move over $145.34 will indicate the presence of buyers. A sustained move under the moving average will help maintain the down side bias.

The short-term range is $1.5460 to $1.3900. Its 50% level at $1.4860 is another upside target and potential resistance level.

Watch the price action and read the order flow at $145.34 today. Trader reaction to this moving average will set the direction for the day.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.