Coffee: Short-Term Reversal Lower As Trend Gets Challenged

Robert Petrucci

Coffee has experienced a reversal lower and is challenging important short-term support as speculators ponder the commodity’s next move.

Coffee has challenged support with short-term downward momentum the past day, but this occurred after the commodity began to challenge highs not seen since the middle of September. Trading late last week saw the 124.00 price touched, which proved to be tough resistance momentarily. Coffee, like many commodities, has a tendency to move fast and its momentum can shift in a flash - which means traders always have to be alert for technical reactions.

The trend for coffee since the beginning of November has been bullish, and late last week’s value hinted that the commodity could be ready to begin targeting the 125.00 level. However, yesterday’s trading was a reminder that reversals are normal within commodities and traders need to have their risk management fully secured. Short-term coffee may continue to face downward pressure, but it does appear that support around the 114.65 juncture could prove adequate. In the meantime, traders may look at the recent highs that were achieved and suspect that the current price of coffee may signal that an accumulation period is occuring before highs are challenged again.

Speculators could be tempted to use limit orders and look for reversals higher near term. In order to capture upward momentum and protect their accounts, traders should be careful not to over-leverage their trades while pursuing a retest of highs made last week. Coffee was able to reach a height around 133.00 in late August, which challenged highs last seen in the commodity in December of 2019.

As risk appetite increases globally, many commodity traders will continue to pursue optimistic speculative positions with the belief that pre-coronavirus values will again be seen. In May of this year, coffee was trading near a low of 88.50 which took it to lows not experienced for many years. Coffee is still trading below what many analysts would say is a normal value. However, the marketplace decides on price and, for the moment, the price of coffee faces headwinds.

However, speculators may favor positions which seek upside momentum for coffee and they cannot be blamed. Short-term reversals lower like those experienced yesterday are part of the playing field within the commodity, but traders can use the downward momentum to seek buying positions if they use limit orders. Buying coffee within its current price vicinity with the belief that higher values will be seen short term appears reasonable.

Coffee Short-Term Outlook:

  • Current Resistance: 118.45
  • Current Support: 114.65
  • High Target: 121.30
  • Low Target: 113.20

Coffee

Robert Petrucci
Robert Petrucci has worked in the Forex, commodity, and financial profession since 1993. Important aspects of his work involve risk analysis and advisory services. As an advisor in a Family Office he maintains a conservative approach for wealth management and investments. Robert also works in private finance with investors and companies delivering financial and management services.

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