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Large Brazilian Crop Continues to Weigh on Coffee Market

Posted 05/09/2018 11:09AM CT | Adam Tuiaana

The Hightower Group has reported that “a record high Brazilian crop continues to weigh on the market.” This, among other factors such as a strong US dollar and weak Brazilian currency have continued to keep the pressure on July coffee prices. Since my last article, July coffee prices have rallied only to face failure at the 126 resistance area. Keep in mind that the last 5 of 7 trading days have been negative, with momentum and volume, not a great sign for the bull camp. This morning we are now seeing some US dollar weakness, while coffee prices are still trading on the negative side. Expect some serious volatility as the Trump- Iran situation continues to bring uncertainty to many of the commodity markets. Wide swings will likely follow any outcome. The next area of support on the horizon will be the 117 level. If this area is violated, expect a correction (possibly back to the 122 level again), and engage in a short position at that time. Traders can position themselves for a long-term downward continuation using long put options that allow exposure and leverage, while managing risk effectively. In addition, buy equal-numbered quantities of options, so that you can remove half of the position when the option value doubles (thus eliminating the premium risk).

Coffee Jul ’18 Daily Chart

Coffee Jul '18 Daily Chart

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Adam Tuiaana

Senior Market Strategist
Adam grew up in Chicago and was always fascinated by the fast-paced action found in the futures market hub there. He began participating in the financial markets by trading stocks in 1997 and began his career as a trading consultant with RJO Futures in March of 2009. At RJO, he specializes in risk management and disciplined trading plans, and is focused on educating clients with one-on-one consulting and training. Adam believes the best approach to trading is to take a measured and objective approach and let the markets guide your decisions.
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