Morgan Stanley Coffee Report

Coffee continued its fall from grace as another gap lower in KCN presented itself on the open.  The story was the Federal Reserve, as yesterday’s post close minutes release seemed to put a potential June hike at the forefront.  Commodities generally, and coffee specifically, found themselves under pressure along with the currencies of commodity producing nations, as the BRL spent much of the session outside 3.60 and the COP was -1%.  The opening dump was dramatic though quickly recovered, and the quiet remainder of the European session would be the last moments of comfort for the bulls.  The active Americas’ trading day comprised an ugly slog lower, broken up only by occasional fits of intense selling, with the period shortly after 11am EDT being particularly dispiriting.  Intriguingly, Robusta found a willing buyer throughout the day, catching the eye of many a trader.  The arb gained a fair bit of attention, and it is possible the RC strength was the function of a trader or two with a particular axe to grind on the strategy.  With a settle 2 ticks below the 100 day MA in KCN, and the 26, 50 and 200 now above settle in that contract, the market will have some work to do in order to climb back into the top of the range.  The KC2 chart is mixed, yet solace will be in slim availability for the longs.