Coffee price: countertrend rebound looking likely

The coffee price decline looks set for a breather, with the short-term picture pointing towards a rebound over the coming weeks.

Coffee Source: Bloomberg

Could coffee prices turn higher from here?

Coffee prices have been on the slide over the years, with Coffee Arabica losing almost 70% since the $3.089 peak almost eight years ago. More recently we have seen a similar ramp-up in selling pressure, with a 25% decline seen since the October peak of $1.2674. However, we are now seeing signs of a potential rebound for coffee prices, with a bullish retracement phase looking likely to come into play.

The weekly chart below highlights the inherent risk of buying against the trend, with prior periods of upside proving unreliable in terms of size. We have seen some examples of rebounds that have spanned a few weeks, while others last up to a year (2016-2017). Looking at this timeframe, we can see the potential role the stochastic oscillator plays, with the rise through the 20 mark often providing us with a buying opportunity. A fall below the 8080 level has also provided us with great selling opportunities, yet for now it is the rally through 20 that matter. In either case there is a strong chance that we are set to enter a more bullish phase for Coffee Arabica.

Coffee weekly chart

Coffee weekly chart

Short-term picture highlights reversal story

The four-hour chart highlights the potential bullish shift we are seeing coming into play, with the rally through $0.9606 providing a tentative bullish signal. The rise out of the lower highs that took place last week looks like a precursor to a bullish shift over the coming weeks.

The subsequent pullback into the 76.4% Fibonacci retracement level signals a higher low to add to the bullish story. Given the descending trendline that has been in play, a rally through there would provide greater confidence of an upside move, just as the stochastic rally through 20 would on the weekly timeframe. In either case, it looks likely we will see the price push upwards from here, in what looks like a retracement of the $1.0850-$0.9189 sell-off. As such, we are looking at $1.0215 and $1.0458 as potential upside targets.

Coffee 4-hr chart

Coffee 4-hr chart


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