Momentum continues to trend higher as the violation of the 10440 area has prompted follow-through selling in September coffee prices. The main issues still revolve around the bearish supply and demand outlook for September coffee, and a lack of any “new-news” is bearish as well. The recent rally that took place in July was primarily based on scares of frost, which ultimately was mitigated by the reality that the damage done was not as bad as traders had earlier anticipated. In addition to the bearish fundamental outlook for September coffee, there is also a continued underlying story in the currency issue. Our friends at The Hightower Group have reported that “Tuesday’s nearly 1% pullback in the Brazilian currency has put significant pressure on coffee”. Lastly, it continues to look as though favorable weather is on the horizon for key growing areas of Brazil, which could add further pressure to September coffee prices.
From a technical perspective, September coffee prices have aggressively sailed way south of the 61.8% retracement, measured from the 9625 low of 6/09, to the 11565 high of July 5th. Until a major threat of the existing large supplies are realistically threatened, I remain neutral on September coffee prices, and would be surprised to see some continued pressure in the near term.