By IFCMarkets

Harvest downgrade supports coffee price

Coffee rallies on lower estimates of coffee harvest for Brazil and Colombia. Will coffee continue rising?

Brazil’s national statistics institute IBGE cut its estimate for the country’s newly finished coffee harvest to 47.8 mln bags on Wednesday, down 2.7% from last month’s forecast. The lower crop estimate for the world’s top coffee producer due to dry weather damage was below Brazil’s crop supply agency Conab’s forecast of 49.7 mln bags, and much lower than US Department of Agriculture’s estimate of 56.0 mln bags. Before the downward revision of Brazil’s coffee harvest Colombia’s coffee production in August was cut 5.9% to 1.189 mln bags by the Coffee Federation in Colombia. The lower supply from world’s top producer and Colombia, world’s third ranking coffee producer, is bullish development for coffee.

COFFEE:D1 is rallying following retracement since mid-July after it hit year and half record high. It is above the 200-day moving average MA(200), the support of the uptrend and has risen above the last fractal high.

• Parabolic indicator gives a buy signal.
• The Donchian channel is tilted upward, which is a bullish signal.
• The MACD indicator is above the signal line and the gap is rising, which is a bullish signal.
• The RSI indicator is in the overbought zone, which is a bearish signal.

We believe the bullish momentum will continue after coffee closes above the upper Donchian channel at 156.13. A pending order to buy can be placed above that level. The stop loss can be placed above the last fractal low at 145.51. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most 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 loss level (145.51) without reaching the order (156.13), we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Technical Analysis Summary

Market Analysis provided by IFCMarkets