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While the market is in a short-term overbought technical position, the fundamental outlook still looks positive and the market seems to be steadily climbing through plenty of producer selling. The selling should slow up soon and the move by end users to pull coffee from exchange stocks should help add to the positive tone. Bullish outside market influences along with chart based buying helped July coffee reach the highest price level in nearly two months on Thursday. A lack of fresh industry news kept the pre-holiday trade thin. An improved macroeconomic sentiment tied to equity market gains seemed to raise investor’s risk tolerance and appeared to attract fresh speculative and fund buying to physical commodities, especially to markets like coffee that also have a positive fundamental tilt. Overnight weakness in the energy markets helped to hold the market down but this could be offset by a weaker US dollar and a firm tone to the metal markets. While an impressive recovery in the Dollar brought the coffee market off session highs on Thursday, July coffee was still able to hold above critical support at 120. Trendline support comes in near 120.10 today. The Commitment-of-Traders report on Friday showed the market in a slight overbought condition but the buying trend of the speculator is a short-term positive force. Trend-following funds increased their net long position by 2,765 contracts to a net long position of just 8,003 contracts. Index funds were also net buyers on the week and the market looks vulnerable to attract increased buying from funds if resistance is violated. It should not take much in the way of positive influences from outside markets to drive coffee prices higher over the near-term. Talk of a steady decline in the exchange stocks and ideas that the steep premium of Colombian and Central American coffees to the exchange could keep demand for exchange stocks firm added to the positive tone. Open interest increased to 143,542 contracts, the highest since August, so the technical setup also looks positive. Exchange stocks were down 28,128 bags to 3.916 million with 4,773 bags pending review. Stocks are down nearly 250,000 bags since early March.
TODAY’S GUIDANCE: Close-in buying support for the July coffee comes in at 120.10 and 118.60 with 123.40 and 134.90 as next upside targets.
