Facts:
- The coffee contract failed to return to its historical peak after the last correction.
- The latest weather forecasts suggest an improvement in growing conditions for the world’s largest coffee producer, Brazil.
Recommendation:
- Trade: Short position (sell) on COFFEE at market price
- Target Price (Take Profit): 362.54 (TP1), 339.28 (TP2)
- Stop Loss (SL): 415.00
Source: xStation5
Opinion:
After months of nearly uninterrupted growth, the coffee contract has been unable to recover from the latest correction after reaching a historical peak of around 437 in February. The rebound attempt was halted by reports from Brazil, the world’s largest coffee producer. The latest forecasts suggest a gradual easing of the ongoing drought, which, according to estimates from the U.S. Department of Agriculture (USDA), contributed to a 2.6 million bag drop in Brazilian coffee exports in 2024.
As speculative positions betting on a continued upward trend are being closed, and with the prospect of improved growing conditions, historically expensive coffee appears to be entering a correction phase. Additionally, USDA forecasts indicate a further recovery in production in Vietnam, which has also emerged from a drought period. Uganda has also recently declared expectations of higher production.
The recent market overheating, updated production forecasts, and the easing of adverse weather conditions provide significant room for a trend shift in coffee. The COFFEE contract is currently testing the 30-day exponential moving average (EMA30, light purple), and breaking through this level could pave the way toward the Take Profit levels.
Methodology:
The recommendation is based on a technical analysis of the COFFEE contract chart and a fundamental analysis of the global coffee market. The expected trend reversal is supported by changing commodity fundamentals and price action, with the contract retracing halfway to its previous peak. The Take Profit levels were determined using Fibonacci retracement levels (specifically, 32.8 and 50), with TP2 also aligning with the nearest resistance from the November-December period and the 100-day EMA (dark purple), which will serve as key technical support in the new downtrend. The Stop Loss is set above the last peak, where a hammer formation was observed before the most recent correction.
