Lately, the coffee trade has been put into “snooze mode” with all of the consolidated price action. However, one must consider the fact that prices of commodities, such as grains and energies, have plummeted substantially on reaction to a strong US Dollar. All the while, coffee prices have refused to sell off substantially. This divergence from other commodities may in fact signal that coffee still may have some “steam” left in it after all. Okay, okay, I won’t quit my day job. While said consolidation continues, traders believe that the recent favorable weather will be the key to increased production in Brazilian Robusta growing areas. More coffee ahead may spell a long term continued down trend.
On the daily chart of May coffee below, we can see the violation of the 140 low from March 13 was in fact a breakdown out of the consolidation range which has been in place since the end of February. However, that very same day, May coffee managed to dust itself off, rally, and close positive, leaving a massive outside day up in its wake. This outside day up (price engulfing pattern) may produce some technical follow through buying in the coming days, resulting in a run to the 145 range highs. In a nutshell, don’t count May coffee out just yet, it looks to be “grinding it out” for a comeback.