For the last five weeks a base has
been building in March coffee futures just above the $1.05 level. Two
significant developments this week we will see a settlement above the 20
day MA and with futures trading at their highest trade in seven weeks
it appears we will get a settlement above the down sloping trend line
that had capped upside for the last seven months. Current trade has
futures 3.50 cents below the 50 day MA (light blue line) which has not
been penetrated in all of 2013. I expect that to play out in
the coming weeks with my objective being the 38.2% Fibonacci level near
$1.30 on this contract. The train is just leaving the station and
I believe their is time to get on board. The seven year low that
was reached in recent weeks may not been revisited for many years in my
opinion.
The recent appreciation has
been accentuated by short covering and the idea that a near-term
shortage of Robusta beans has the potential to drive up demand for
Arabica. Growers in top Robusta producer Vietnam have been holding
back their beans, waiting for higher prices...despite
harvesting a bumper crop. That has lifted coffee prices on the Liffe to a
near 3 1/2 month high. The gap between the two different blends
narrowed last week to a five year low near 28 cents/lb. A rise in
consumption is expected by 1.6% year over year in Arabica -
the largest jump since 07-08'. Before getting too excited 14' is
expected to be the third year of surplus production so Bulls should take
their profits on a spike higher in the coming weeks.
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