Technical analysis: Will the correction of coffee quotes continue?

COFFEE: D1 is in a descending channel on the daily time frame and is attempting to approach its lower boundary. A number of indicators of technical analysis have generated downward signals. If coffee falls below the 200-day moving average, the most recent down fractal, and the lower Bollinger band, 216.5, we cannot rule out a bearish movement. This level serves as the starting point. Initial risk limit possible above previous upper fractal, upper Bollinger band, and Parabolic signal: 241.

After opening a pending order, the stop is moved to the next fractal low based on Bollinger and Parabolic signals. Thus, we improve the potential profit-to-loss ratio. After placing a trade, the most cautious traders can switch to a four-hour chart to set a stop loss in the direction of price movement. If the price surpasses the stop level (241) without triggering the order (216.5), it is recommended to cancel the order because internal market changes were not accounted for.

The USDA predicts that global coffee production will increase by 4.7% y/y, or 7.8 million bags, to 175 million in the 2022/2023 crop year. Simultaneously, global consumption will increase by a meager 1,8 million bags to 167 million. This could result in a 6.8 percent increase to 34.7 million bags in global stocks. According to the USDA, the most significant increase in coffee consumption will occur in the European Union (+1 million bags) and the United States (+0.5 million bags). Consequently, economic risks may impede this. The weakening of the Brazilian real versus the U.S. dollar is an additional negative factor for arabica coffee prices.

According to the Green Coffee Association, green coffee stocks in the United States increased by 3.2% year-over-year to 6 million bags in May. It should be noted that coffee prices are highly influenced by the weather in Brazil, where the harvest is currently taking place. In the event of a drought, they are able to appear. In the meantime, the USDA predicts that Brazil’s arabica coffee harvest will increase by 5.1 million bags year-over-year to 41.5 million bags this season.

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