Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
While it seems as if the cocoa market is primarily being influenced by the currency, seeing macro economic doubts start to resurface suggests gains in cocoa may not come easily. July cocoa appears to have set a low near the $2,300 level and perhaps some commercial buyers decided to buy cocoa rather than risk future news of a spread of cocoa disease in African growing regions that was initially noted earlier this week. But in order for cocoa to push above overhead resistance levels may hinge on the Dollar continuing to slide. It looks as if the cocoa market was initially undermined yesterday by the sharp fall in equities tied to fresh concerns that an economic recovery will be delayed by rising unemployment. If a less optimistic view on the economy takes hold, it could certainly dredge up fresh fears over sagging chocolate demand. It was certainly clear that the downside reversal action in the Dollar and the strong upside recovery in the Pound yesterday were the key factors influencing the cocoa trade. Ideas that the Fed may step up its asset buying plan seemed to be stoke inflation concerns triggering broad based Dollar selling in yesterday’s trade which appeared to offset the Dollar’s usual safe haven appeal when equity market’s decline. The Dollar’s slide seemed to attract buyers back to the cocoa market since it raises the appeal of physical commodities as an inflation hedge. Arbitrage related buying was likely another factor supporting NY cocoa given the Pound’s strong upside reversal after initially being pushed down on concerns the UK’s triple-A sovereign debt rating may be downgraded. A lack of fresh cocoa industry news will likely keep the cocoa trade tied to currency market action which could certainly make for a volatile trade ahead of the long holiday weekend.
TODAY’S GUIDANCE: The higher closes in July cocoa over the last three sessions gives the market a slight upward bias. The currency action has been mixed overnight with both the Dollar and Pound trading a bit weaker and that could also lead to a choppy trade in cocoa. However, traders should look to the June Dollar Index for cocoa market direction since another wave of broad based selling in the Dollar could be seen if the currency is pushed below the 80.20 level and that could fuel more gains in cocoa.
TODAY’S MARKET IDEAS: Strong overhead resistance at $2,390 then $2,412 and at $2,420 may be hard to crack for July cocoa unless another sharp fall in the dollar is seen. Close in support is at $2,360.
