Morgan Stanley coffee report - July 27

Another strong day in Arabica, as the active contract closed above 110 for the first time since May 11, 110.40, +200.  MOO selling sent prices 100 points lower against Friday’s settlement and that would be the low for the day.   A perceived bearish COT report in London & the accompanying downticks ahead of New York’s opening, along with a reported increase in Brazilian selling over the weekend, spurred the opening losses however they would prove to be temporary.  The Dollar, and later the BRL, drove renewed spec buying, as well as sparking accompanying debates about the stickiness of that particular catalyst going forward.  The DXY fell to its lowest level since June 14, 2018 from which a bull flag had provided a launchpad for the following nearly 2 year strengthening.  Outright volume was around average for the past 7 trading days, yet above normal spreading (the 2nd highest count since June 29th) boosted total volume over 50k lots.  Basis the 2nd month continuation Arabica convincingly broke away from the 200dma (110.58) after trading within 1c of it on either side for the prior 4 trading days.  A 9am drubbing was accompanied by spread weakness as KCU lost 100 points and U/Z backed 2 ticks off what was then its high points, however by end of day KCU had traded a recent high and U/Z closed unchanged at -2.90.  Longer term structure remains divergent from the spot, as Z0/Z1 slipped a tick to -6.25.  Arabica certs were unchanged as were pendings.  Robusta’s near record short covering on revealed on the COT gave pause to traders Friday afternoon, yet worst case projections were not realized.  Futures fell as low as 1332 in overnight trading (-26 vs Friday’s settlement) before closing 1346, -12.  A continued fundamental friendliness from discretionary buyers, backed by the 810 ton cert draw (largest since July 1st) helped cushion losses along with pace trading to her sister market.  U/X and X/F each closed -15, 2 and 1 ticks weaker respectively, as Conilon differentials reportedly weakened roughly a cent with Friday’s rally.