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Coffee price will likely continue with its rallying in the coming year. The uptrend is founded on the ongoing tight supplies and recovery in demand.
Extensive rallying
According to Saxo Bank’s head of commodity strategy, Ole Hansen, coffee price action in coming months will largely depend on how long the recent events will last. During a recent interview with CNBC, the analyst noted that over the past 12 months, there has been “a perfect storm of events” that have helped boost the commodity.
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One of the key bullish drivers in 2021 has been the harsh weather conditions in Brazil. Earlier in the year, the leading producer of coffee worldwide experienced frost. Besides, in recent months, there has been drought in some of the coffee-growing regions within the country.
The subsequent impact on output is expected to continue into 2022. Indeed, Hansen is of the opinion that the effects may extend into 2023. He recalls that when the market was defined by similar weather-related concerns in 2011, coffee price surged by $3 per pound.
Notably, the situation in Vietnam has further tightened coffee supplies. The country is the leading producer of the Robusta variety. According to the General Statistics Office, coffee exports dropped by 4.4% between January and November compared to a year ago.
Coffee price prediction
Coffee price has surged by over 90% since the beginning of the year. The bull market has been founded on the steady recovery in demand and tight supplies. Notably, the rallying has intensified over the past three weeks.
The Coffee C futures, which are the global benchmark for the Arabica variety hit a 7-year high of 215.45 in mid-November. Since then, it has been trading above that level. It ended Friday’s session at 243.35, up by 2.85%. It is back on its uptrend after pulling back from a 10-year high in the previous week.
Based on both the fundamentals and technicals, I expect coffee price to remain on an uptrend for the remainder of the year and into 2022. In the short term, I expect the agricultural commodity to find resistance along the 10-year high of 248.00 that it hit in the past week.
Even if it moves past the aforementioned resistance level, it will likely hover around the psychological zone of 250. With additional bullish momentum, the next target will be at September 2011’s high of 256.85.
On the flip side, the support levels to look out for are the 25 and 50-day EMAs at 236.20 and 230.80 respectively. For as long as coffee price remains above the prior resistance-turn-support level of 215.45, the rallying will continue.
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