Among the major gainers in the commodities sector so far this year, Coffee futures continue pushing towards record high territory. Coffee is the second most heavily traded commodity behind crude oil, and the recent surge towards $3.00 per pound reflects the mounting worldwide demand for commodities against the backdrop of a weakening US Dollar.
With South America accounting for the majority of coffee exports, strong currencies in the exporting countries are underpinning the speculative drive up in the tropical commodities, the combined effects of which may prove to make Coffee futures a stellar performer for the rest of the year. Brazil's major harvest begins in late April and into May, and any disappointing yield expectations are likely to add fuel to the bull market.
The latest market action in the Coffee futures has been extremely volatile, but also fairly directional considering the very high price level. Show here on the 240-minute time interval, Coffee has been moving gradually higher in a Flag chart pattern, and is currently trading near $2.75 per pound- approximately the middle of this intermediate term price range.
While this may represent a continuation pattern, culminating in a downside breakout and resumption of the minor sell-off witnessed in February, a breakout to the upside to initiate a reversal pattern is also highly possible given the strength of the market as well the whole complex.
Scale trading the range within the channel created by the Flag pattern may create short term opportunities, with well-defined support and resistance levels to pivot from Given the lengthy development of the Flag, and wide price range between the top and bottom end, there may considerable time remaining before a decisive breakout occurs.
Traders will be watching the market behavior at both the resistance price level near $2.80 per pound, as well as the support provided near $2.80 per pound, for clues to anticipate the most plausible direction of the next significant move in Coffee. A breach of the upper level and a commensurate reversal towards the previous highs would likely bring a test of the $3.00 per pound level very quickly. Likewise, a failure of support and renewed selling pressure could mark a long term top in this market.
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