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Caffeine low

Caffeine low

Agricultural commodities are a prime example of how supply and demand can affect price. Any negative reports around crops imply scarcity and can push prices up, while positive news often drive prices down. Coffee Arabica currently has a scarcity of negative news around it, which could be a contributing factor to the current downward move in price.

Starting our analysis at the monthly chart below, we can see that price is downtr ending with a well-defined sequence of lower highs and lower lows.

The moving average (MA) configuration suggests a strong trend is at play with the 10 period MA below the 20 period MA, which is in turn below the 50 period MA a “fanning pattern” configuration. While both the RSI and the MACD are a little flat, there is no divergence.

We can see that price has fallen through the support level (blue support line) and has come back to retest it as resistance, before rejecting that level. This is a bearish configuration suggesting further downside potential on this timeframe. Most people do not trade based on monthly charts, but it may provide an opportunity to enter a trade on the lower timeframe with a view to capturing a longer-term move, in the event a valid trade setup occurs.

On the weekly chart, the price action doesn’t look as well structured as on the monthly chart. As price has moved up to test resistance on this timeframe, it did so from an uptrend with a higher high and higher low in place. But the clear rejection of this level and the decisive move that follows, suggests that momentum is to the downside.

Moving our analysis down to the daily chart, price is downtrending with a lower low and lower high in place. Both the MACD and RSI are converging with price, suggesting that there is potentially good trend momentum. 

Price has gone through a level of support and dropped straight down to the 50 period MA. Although this trend looks like it has more to give, price doesn’t move in a straight line forever and after a decent move such as this, price in my opinion is likely to pull back. An obvious place to pull back to, would be to re-test the level of support that has just been breached as resistance.

The fact that the long-term downtrend on the monthly chart is in agreement with the trend on the daily chart makes Coffee Arabica very interesting, with the potential to enter on the daily and then participate in the longer-term move.

I will be watching for a pull back to the resistance level, which could be the catalyst for the next move down.

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