Morgan Stanley Coffee Report

All planets aligned to start the week with a strong encore to Friday’s performance in the Arabica market.  Starting with the benefit of a constructive COT report, which showed funds net short of 7,078 lots, prices continued to rally as systems and momentum funds remained engaged buyers.  Adding fuel to the fire was the tailwind of a gap higher in the CRB complex which traded to a fresh 7 month high as commodity prices sustained a broad based rally on the assumption that following Friday’s weak jobs report the fed would hold off on increasing rates.  Thrown into the mix were concerns that too much rain continues to fall during the harvest season in Brazil, and the bears simply had the cards stacked against them.  London went along for the ride as prices rallied to within $3 of May 17th’s 9 month high yet the arb struggled to keep pace and widened by two and a half cents.  Janet Yellen gave a speech later in the trading session in which she stated positive forces outweigh negatives in the U.S. economy and that she sees rates rising gradually without giving a precise timing.  A respectable 10 cent rally over the past 3 day’s saw little Brazil participation, industry standing aside and specs paying up to cover.  The 13215-13225 gap in July is the next logical level of resistance, followed by the 13530 high of the 17th of May.   More difficult to pin to down is support which will largely be dependent upon where, and if, those discretionary specs who liquidated on the way up chose to reenter on the long side.