Weather and fungus outbreak concerns are bullish for coffee prices
Cold seasonal weather in Brazil and coffee rust outbreak in Honduras may negatively affect coffee supply. Will coffee prices continue rising?
The International Coffee Organization highlighted the risk of seasonal frost in Brazil which may negatively affect crop outlook in the top coffee producing country. Another factor with a potential negative impact on world coffee supply is the possibility of coffee leaf rust in Honduras. Coffee rust was found on some trees which were thought resistant to the fungal disease. Possible cold weather in Brazil and coffee rust outbreak in Honduras are bullish for coffee prices.
On the daily chart COFFEE:D1 is rising after hitting 15 month low three weeks ago. Price has risen above the resistance line but is below the 50 -day moving average MA(50).
- The Parabolic indicator gives a buy signal.
- The Donchian channel gives no signal: it is flat.
- The MACD indicator is neutral: no gap has developed with the signal line.
- The stochastic oscillator is falling but has not reached the oversold zone yet.
We believe the bullish momentum will continue after the price crosses above the MA(50) and the upper Donchian bound at 131.92. It can be used as an entry point for a pending order to buy. The stop loss can be placed below the last fractal low at 123.55. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level (123.55) without reaching the order (131.92) we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical Analysis Summary
Position - Buy
Buy stop - Above 131.92
Stop loss - Below 123.55