IFC Markets - Analytics

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    Technical Analysis #C-COFFEE : 2015-05-20

    Harvesting starts out

    Today we examine the COFFEE price activity. Prices have started to slip since mid-October, affected by positive forecast of the expected harvest and stronger US dollar. In early March coffee prices took hold near current levels and are now swinging slightly in a range. Meanwhile, the coffee crop (season 2015/2016) is being harvested in Brazil, the country which stands for one third of the world market. The crop is expected to be approximately the same as in previous season, about 45 million 60 kg coffee bags. According to the Brazilian Association of Exporters Cecafe, coffee supply on the world market will fall 3.5% as domestic demand increased. It will amount to 35 million bags. In this season world coffee reserves will be reduced by 3-4 million bags, as stated by International Coffee Organization. This may bolster coffee prices in tandem with a possible negative impact of El Nino. Any deviation from optimistic forecast in the factual crop in Brazil and Indonesia could also set the prices higher. Note that coffee production in Indonesia is expected to rise by about a quarter this season. Domestic consumption will also increase, but it is still unknown the amount of this upsurge so far. This country provides 8% of the global coffee crop.


    COFFEE broke the bearish resistance line on the daily chart and entered the sideways trend. Bollinger bands are still narrow, which might indicate low volatility. Thus, they have a bullish bias. MACD histogram is below the signal line and the zero level, but is preparing to break it: a bullish signal. Parabolic indicates a buy signal. RSI bars are rising, forming bullish divergence. In fact, it is located at the level of 50, which implies a robust price movement. There is a possibility of further bullish momentum development after a COFFEE candlestick is being closed above Parabolic points, Bollinger band and the last fractal high at 149. We consider this mark to be the upper boundary of the existing horizontal trend. Stop loss is to be placed below the first-formed Parabolic point, Bollinger band and the lower boundary of the range, confirmed by three fractals at 129. Unfortunately, the range turns out to be quite a wide one, equal to the sideways trend scale. After pending order placing, Stop loss is to be moved every four hours to the next fractal low, following Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most careful traders can switch to the H4 timeframe after order execution, placing Stop loss and moving it according to the price direction. If the price meets the Stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.


    Position Buy
    Buy stop above 149
    Stop loss below 129

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