The FOMC turned more cautious on its last meeting, confirming the pause of interest rate hikes but shifting its strategy of balance-sheet normalization, a much more dovish stance than expected. Investors jumped back on equities, resuming the recovery started in 2019 and helping commodities to finish January as the best start of the year since 2003.
Moral-hazard comes back to the headlines as traders call as a FED-put the response of the committee to correct the course of tightening when the markets are jittery moving to the downside, like in December. The monetary authority though says that risks of slowing growth in China, Europe and in the US justifies the measures, but lagging indicators like the non-farm payroll show quite a strong job market.
The dollar index plummeted after the end of the FED meeting benefiting emerging market currencies, like the Real. Coffee in New York responded quickly rising 3.80 cts on Thursday, giving back more than half of the gains on Friday to recoup today.
ICE arabica zig-zag gives short-term specs a better day-trade opportunity, at least for those that are able to beat the algo/high-frequency funds, but for now the March contract remains inside the 98.55 and 106.95 range.
Many have been reporting origin participation on the higher moves of the terminal, likely coming more from mild-producing countries as for Brazilian farmers the appreciation of the BRL does not allow better prices being paid internally.
In Brazil rains below the historical average in January along with very hot temperatures have provoked damages in some areas, as seen in pictures and videos that circulate, but in general many say that it is in few micro-regions, not reflecting the majority of the coffee-belt.
The market will have to wait to put a number on the loss, and then digest what this will reflect on the overall output, hopefully it will not be significant – which does not diminish the pain of those that see their trees suffering.
Weather institutes are forecasting a normalization of rainfall in February, and as a matter of fact, it has started to rain during the past weekend breaking the drought-pattern and diminishing temperatures. Extended forecasts being less accurate, leave many still on waiting mode to take a market view/position (to either side), but looking at the rally today it seems like some are pulling the trigger.
The differentials for virtually all origins remain firm, which is positive sign, but insufficient to push New York higher without more news.
Coffee buyers are just buying what is needed, not looking to extend coverage with differentials being away from desirable levels.
The Lunar New Year celebrations take Vietnam out of the market for at least ten days, eventually serving as a stimulus for the London terminal to break US$ 1,600 per ton, and perhaps giving New York a lift.
The CFTC returned to work after the partial shutdown of the US government, releasing last Friday the position of the traders, but for December 24th, not from last week. The agency says it will release the missing reports twice a week, Tuesdays and Fridays until it gets up-to-date. Therefore, only on March 8th will we have current data, in the case referring to the 5th of the same month.
Funds being shorter on the week of the Christmas, when the board rose US$ 2.80 cents, might have been one of the reasons for the market to close positively. Let’s hope it will be able to break 106.95 and attract more short-covering.
Currency and weather are the two variables to make a significant change on the price action.
NY March19 settled positively and might likely test US$ 106.95 again, where stops shall be found, making the next target the most important resistance at 109.25 (100-day moving average). On the downside 101.55 seems to be a strong support that prevents a new dive to the low, 98.55 cts/lb. London has let go a significant gain on Friday, after it sunk from 1592 to 1547, but today it consolidated inside Friday’s wide-range. Support is at 1529 and resistance at 1600 for March18 contract.
Have a nice week and good trades.
WhatsApp: +1 646 468 7091
« Back to index