Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
Looking at Arabica Coffee market for the medium term, I would say it could become extremely interesting in the weeks ahead. There are several factors that could move this market in the next week beyond the big Brazilian crop that is expect to hit the market in 2H-2018.
Specifically I am seeing some macroeconomic pressures: higher interest rates, rising inflation, dollar at the lows and less stable financial markets, that could be affecting the coffee price trajectory in the coming weeks.
In the short term, the manifestation of those complications mainly for long spec group, would be less risk appetite in coffee, that means they could be more willing to cut (further) their net short position.
IMO last COT is quite constructive. If I am right, I expect some confirmatory signals this week.
I think the first reaction to last COT is going to be to the downside, however that selling pressure would disappear in one or two days, when people realise that large specs are not the sellers that they used to be.
Three things lead me to the idea that large specs are liquidating.
1. Gross long position (large specs) is on the rise. We could be in the 4th week of the process (next COT will be very interesting)
2. The large specs bullish bet (number of long contracts btw total number of contracts) is taking distance from its lows.
3. Large specs are becoming a more heterogeneous group, with more bulls and less bears, as a result its net position should correct forward (turning more flat). And more important their negative impact in the price is getting smaller (I use a proprietary indicator to weight the price impact of the large spec activity).
I am posting three graphs that show the 3 points I have described above.
Bottom line, having a group of large spec less willing to sell the market, the next upside correction will have better chances to start.
If there is such upside potential, the market must show some strength this week, it should overpass the pressure that will create the short term sellers on monday (maybe tuesday), then recover and then produce a positive weekly close.
I think that 1,18 (if possible) would be a great buying average price for the midterm. upside objective are 130-133 with and extension less likely but possible at 1.38. Max risk to the 112-110 area.