COCOA: Technical Analysis – Cooler weather in W. Africa may damage the cocoa crop

By IFCMarkets

Cooler weather in West Africa may damage the cocoa crop

Cooler weather in West Africa may reduce the cocoa crop. Will its prices increase in the world market?

The worsening of weather conditions may impact Côte d’Ivoire, Ghana and Cameroon. These countries account for 65% of the world cocoa production. An additional factor in the price growth may be the escalation of the political situation in Côte d’Ivoire, which accounts for 35% of the world cocoa production.

On the daily timeframe, COCOA: D1 has approached the resistance line of the neutral trend. To open a Buy position, it needs to be overcome. The further price increase is possible in case of the worsening of weather conditions in West Africa and the crop reduction.

• The Parabolic indicator gives a bullish signal.
• The Bollinger bands have narrowed, which means lower volatility. They are tilted upwards.
• The RSI indicator is above 50. It has formed a positive divergence.
• The MACD indicator gives a bullish signal.

The bullish momentum may develop in case COCOA exceeds the upper Bollinger band and the last fractal high at 2020. This level may serve as an entry point. The initial stop loss may be placed below the last fractal low, the Bollinger band and the Parabolic signal at 1800. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 1800 without reaching the order at 2020 we recommend cancelling the position: the market sustains internal changes that were not taken into account.

Summary of technical analysis

Market Analysis provided by IFCMarkets