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The market seems to have the fundamentals to grind higher in the next few months but the technical action has been weak and speculative long liquidation selling has been active since April 13th. Open interest has been declining and while Colombia coffee is still holding a historically high premium to the New York futures. End users have substituted other coffees and Brazil exporters have been active for much of this year. Brazil stocks should tighten ahead of their harvest and end users also see exchange stocks as viable for usage. July coffee managed to hold support near the 112.80 level for the third session in a row yesterday and closed higher on the day with an outside trading session. On top of positive news from outside markets, traders view coffee as technically oversold and there was talk that a prolonged strike by truckers in Colombia (if it occurs) could cause even further tightness in supply. Open interest slipped another 1,559 contracts to 134,323 which is down from 143,542 on April 8th. Brazil is expected to be seasonally cool and dry weather all this week, which should aid in the crop preparation for harvest in another few months. While it is an off cycle year, weather has been favorable for much of the season. Exchange stocks were down 19,416 bags yesterday to 3.88 million with 1,500 bags pending review.
TODAY’S GUIDANCE: The market is moving to a more technically oversold condition. July coffee key support is at 112.60 with 114.50 and 116.35 as resistance. A move through resistance might confirm a near-term low to see a resumption of the uptrend into the summer.
