The technicals behind coffee appear increasingly appealing, at a time when the fundamentals for commodities look increasingly bullish. Market chatter about food and drink inflation is also starting to pique the interest of speculators and traders looking for undervalued assets.
According to a recent report from Forbes the price of coffee is set to increase this year. It is not only a demand story, but also a supply shortage story. Reports suggests that weather issues in key countries that grow coffee could start to affect the price of the popular brew in 2021.
Other bullish factors underpinning the price of coffee include a rapid expansion of vending machines and coffee houses across the globe, and the rising demand for coffee amongst developing economies. Reports also suggest that if COVID-19 goes away in the 2021 they coffee prices could explode to the upside.
COVID-19 has undoubtedly kept a lid on coffee price prices over recent months. Still, looking at the rapid appreciation of some food and drinks since last year, it would not be hard to imagine that the price of coffee could follow suit and start to rally.
One of the great things about commodities is their ability to form almost unstoppable price trends. If commodity scarcity occurs then parabolic moves can quickly take hold as investors reprice the asset, and buyers scramble to acquire stock while demand lasts.
The price of coffee has been notably capped by the $130.00 level for nearly six months and has been quickly purchased on dips below the $100.00. In terms of technicals, coffee is making higher highs and lower lows, and remains well-above its trend defining 200-day moving average.
Going forward, the biggest test for coffee is going to be $140.00 level, which is basically a multi-year that traders are closely watching. A breakout this area and coffee could make a rapid ascent towards the $175.00, and possibly the $200.00 level.
Coffee Short-Term Technical Analysis
According to the ActivTrader platform market sentiment indicator traders are currently neutral towards coffee, with 50 percent of traders short coffee and 50 percent of traders are long coffee.
This does not bode well for a new trend forming anytime soon. Typically, a strong one-way skew in positioning would be ideal for timing a new price trend. With that said, if traders start to short coffee heavily then this could be a good time to pay attention to coffee.
In the near-term, the four-hour shows that bulls have invalidated a bearish head and shoulders pattern after moving the price above the $130.00 level. The $140.00 level is seen as a possible target.
Source by ActivTrader.
Traders that are simply looking to play the range may look for a strong rejection from the $140.00 area, in anticipation of a coming reversal back into the established range between $140.00 and $100.00.
Coffee Medium-Term Technical Analysis
Looking at the daily time chart the overall importance of the $145.00 level cannot be understated. The $145.00 level is the multi-year range top and the head of a large bearish head and shoulders pattern.
With this in mind, a huge technical breakout will take place if the $145.00 resistance level is broken, placing the $190.00 level as a realistic upside target.
Source by ActivTrader.
Failure to form a new high is likely to see coffee sold back towards its key 200-day moving average, around the $113.00 level. For all intents and purposes, the $145.00 level will define the technical picture for coffee going forward.
