Softs Are Higher
Demand may have reached its low point during the second quarter and the market remains in a steep uptrend. With fresh bullish supply news for the market to digest this week, cocoa prices can extend their current recovery move. The market posted a third close in a row above its 200-day moving average, which is the first time that cocoa prices have achieved that since early March.
The market remains in a steep uptrend but the turn down from a key resistance point (127.15) would suggest that a short-term peak may be in place. After the move to a new 4-month high, the market experienced a quick 5% drop from the highs. The International Coffee Organization (ICO) forecast a 2019/20 global production deficit of 486,000 bags in spite of lower restaurant and retail shop consumption, and that fueled sharp gains early in the day as the ICO’s adjustment came from a 2.4 million bag uptick in global consumption.
The July 9 high at 64.90 is a key resistance area. Ongoing dry weather concerns for Texas and a weaker dollar (which came close to testing Friday’s two-year low) have lent support. The trade may also be energized by talk of a video conference meeting between senior US and Chinese trade officials scheduled for August 15 in which they are expected to review the implementation of the phase 1 trade deal. So far, China is behind pace to meet the agreement. However, when it comes to cotton, China at appears to be ahead of the game.
The hook reversal after a run to the highest level since March 10th points to a need for a technical correction. While improving global risk sentiment and the recent strength in key outside markets have helped to fuel sugar’s upside breakout, bullish supply developments from Thailand have been a major source of support.
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