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May cocoa’s chart remains weak and after yesterday’s downside breakout the market looks to be on track for an eventually slide to test the $2,750 price level. A good portion of yesterday’s selling in cocoa looked to be currency connected. Cocoa fell on arbitrage related selling tied to the Pound which slid to a 10 month low and was under pressure after a political poll suggested no UK party would win a majority in parliament in the upcoming general election. May cocoa may have some ability to bounce this session depending on the currency action, but in the early overnight action the Dollar has continued to gain against the Pound and Euro and that could keep cocoa under pressure. We still see the upside for cocoa limited by the market’s fundamental and technical setup which will leave downside price risk in place. May cocoa has fallen back from 30 year highs reached in January as it is becoming increasingly apparent that this season’s Ivory Coast crop will be larger than last year. The main Ivory Coast harvest is winding down and arrivals to ports are running 4.6% ahead of last season. While the Ivory Coast’s cocoa marketing body reported that the main crop cocoa harvest would likely end up below the 5 year average of 885,000 tonnes, traders seemed to be focusing on the fact that supplies will be bigger than last year given the improved prospects for the upcoming mid crop. After seeing a good mix of rain and sun over the last month some industry forecasters are significantly raising the outlook for mid-crop production and part of the liquidation selling seen in cocoa yesterday was certainly tied to the supply side news. Even the political situation in the Ivory Coast is calming down and that will remove a geopolitical threat from the cocoa market. While the supply outlook for cocoa has improved, sentiment in cocoa has been damaged by ongoing concerns that high sovereign debt levels in Europe and the UK will hinder the economic recovery in major chocolate consuming regions. ICE cocoa warehouse stocks stand at 4.363 million bags, up 32,751 bags.
TODAY’S GUIDANCE: Yesterday’s price action in May cocoa was technically bearish. Based on the contract low (November 2008) to high (January 2010) range, a 50% retracement comes in at $2,747 while a 61.8% retracement comes in at $2,566. With funds still holding nearly 28,000 contracts net long as of early last week, cocoa would seem to have ample selling capacity and that may push the market toward $2,750 before a significant technical bounce is seen. The May contract could trade as low as $2,566 if there is a bumper Ivory Coast mid-crop.
Cocoa Market Commentary – 2010.03.02
by Terry Roggensack on March 2, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
May cocoa’s chart remains weak and after yesterday’s downside breakout the market looks to be on track for an eventually slide to test the $2,750 price level. A good portion of yesterday’s selling in cocoa looked to be currency connected. Cocoa fell on arbitrage related selling tied to the Pound which slid to a 10 month low and was under pressure after a political poll suggested no UK party would win a majority in parliament in the upcoming general election. May cocoa may have some ability to bounce this session depending on the currency action, but in the early overnight action the Dollar has continued to gain against the Pound and Euro and that could keep cocoa under pressure. We still see the upside for cocoa limited by the market’s fundamental and technical setup which will leave downside price risk in place. May cocoa has fallen back from 30 year highs reached in January as it is becoming increasingly apparent that this season’s Ivory Coast crop will be larger than last year. The main Ivory Coast harvest is winding down and arrivals to ports are running 4.6% ahead of last season. While the Ivory Coast’s cocoa marketing body reported that the main crop cocoa harvest would likely end up below the 5 year average of 885,000 tonnes, traders seemed to be focusing on the fact that supplies will be bigger than last year given the improved prospects for the upcoming mid crop. After seeing a good mix of rain and sun over the last month some industry forecasters are significantly raising the outlook for mid-crop production and part of the liquidation selling seen in cocoa yesterday was certainly tied to the supply side news. Even the political situation in the Ivory Coast is calming down and that will remove a geopolitical threat from the cocoa market. While the supply outlook for cocoa has improved, sentiment in cocoa has been damaged by ongoing concerns that high sovereign debt levels in Europe and the UK will hinder the economic recovery in major chocolate consuming regions. ICE cocoa warehouse stocks stand at 4.363 million bags, up 32,751 bags.
TODAY’S GUIDANCE: Yesterday’s price action in May cocoa was technically bearish. Based on the contract low (November 2008) to high (January 2010) range, a 50% retracement comes in at $2,747 while a 61.8% retracement comes in at $2,566. With funds still holding nearly 28,000 contracts net long as of early last week, cocoa would seem to have ample selling capacity and that may push the market toward $2,750 before a significant technical bounce is seen. The May contract could trade as low as $2,566 if there is a bumper Ivory Coast mid-crop.
Tags: Cocoa, Softs
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