For the third consecutive session, Coffee futures broke lower to new lows, with the July delivery contract losing 140 points to settle at 132.90 cents per pound. Prices opened lower, and found some support early on, on short term speculative short covering. A sharp liquidation in London added pressure to the New York market, driving it to continue its liquidation, breaking through the May 2016 lows and reaching levels not seen since the end of April of 2016. Over the past three days, coffee prices have lost 12.65 cents or 8.7%.
The fall began on Wednesday, with May option expirations. Unable to hold the 140, speculative covering against short puts pushed the market lower, running through STOP orders near short term support. Selling ahead of first notice day pushed the market lower, once again accelerated by sell stops. On the third day, London’s liquidation, along with the weak technical outlook, were enough to push the market to even further lows. On fundamental news, GCA inventories increased over 279,000 bags to over 6.7 million bags. Delivery notices against the May contract have totaled 305 lots to date.
Fierce spec liquidation in London saw values plummet throughout the session, as flat prices broke away from recent range-bound activity.
Prices immediately lowered off the opening bell in response to final hour weakness in New York yesterday evening, setting the precedent for a negative trajectory which was maintained all the way through the session. A move below $2100 basis July accentuated the move with considerable put option open interest having accumulated at this strike. A move below this strike coincided with a breach of the 61.8% Fibonacci retracement of Robusta’s uptrend, dating back to December 2016, as resting clips of commercial buying did little to stem the tide of selling which ensued. A breach of the psychological $2000 triggered further weakness inside the final hour of the weak, temporarily breaching the 100% retracement at $1984 for the lowest weekly close in London since September 2016. . Significant volume was traded through the structure throughout the session, with the May/July trading 20,000 lots and weakening to $29 discount as the flat price continued to unravel. A further 9500 lots of the July/Sep traded a $4 range and weakened out to $18 discount.
Large July based turnover was generated in the option arena, with 1950,2000 and 2050 puts particularly active and participants will monitor open interest changes around these strikes heading into next week.