The technicals behind coffee appear increasingly appealing, at a time when coffee prices closed the daily candle above the $200.00 level this week for the first time since 2015, following last week’s 20 percent price jump.
Coffee prices are approaching their highest in nearly seven years as unusually cold weather threatens coffee crops in the world’s largest producer, Brazil. The fundamentals are looking increasingly bullish, however, the technical are even better and are pointing to more parabolic gains.
Market chatter about food and drink inflation is also starting to pique the interest of speculators and traders looking for undervalued assets. Commodities tend to form very strong price trends when speculators start to enter into the market.
Coffee looks set to challenge its all-time price high, a break above the all-time high is likely to start the next parabolic run, with the $400.00 level seen as a possible medium-term upside target.
Harsh frosts last week damaged a large part of the fields in Brazil’s main coffee belt and a new polar air mass is forecast to move over the same areas later this week, the third strong cold front to hit crops this year.
A coffee trader from commodity trading company I & M Smith recently said in a market update “This marks the first time since 1994 that the country (Brazil) has experienced such a weather event”, referring to the July 20 harsh frosts.
According to the ActivTrader platform market sentiment indicator some 68 percent of traders are short coffee, meaning that a big, short squeeze could be in the making, and even more seeing as Coffee is up nearly thirty percent this month.
This does not bode well for bearish. Typically, a strong one-way skew in positioning is ideal for timing a new price trend. With that said, if traders start to long coffee heavily then this could be a good time to take some money off the table.
Coffee Short-Term Technical Analysis
In the near-term, the four-hour shows that bulls have invalidated a bearish head and shoulders pattern after moving the price above the $165.00 level.
Traders that are simply looking to buy into a pullback or enter into the established price trend then a notable price gap, around the $175.00 level, could present such an opportunity.
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Coffee Medium-Term Technical Analysis
Looking at the daily time chart the overall importance of the current all-time price high, around the $225.00 level, should not be understated as a parabolic move could be in the making
The $225.00 level is the multi-year range top and also the breakout time to watch this week if the supply issues for coffee. With this in mind, a huge technical breakout will take place if the $225.00 resistance level is broken, placing the $400.00 level as a possible upside target.
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