Morgan Stanley Coffee Report

The dollar posted its biggest two day loss since 2009, on the back of the fed chair Janet Yellen’s announcement yesterday which indicated the pace of rate hikes will be more gradual than the market had been anticipating.  Forecasts are now focusing on 2 rate hikes during 2016 down from the 4 that had been expected when in December the fed raised rates for the first time in a decade. Macro induced buying saw the CRB index gain 2%, trading back to the levels of December 31, one  day after coffee took out the highs of the same day.  Traders awoke to coffee prices gapping higher and by 6:08 were trading 495 points higher as news filtered out that chances for a change in government increased after the release of a recording that allegedly showed President Dilma Rousseff trying to shield Lula from prosecution in the corruption scandal.  A day after it was announced that Lula would become chief of staff, a federal judge suspended his nomination to this or any other post that would grant him special immunity under Brazilian law. While the past two days saw technical buying overcoming the obstacle of a weaker currency, the return to strength on the real along with engaged technical buying created another  5 cent leg higher.   Brazil took well advantage of today’s strength and volume was a hefty 78,783 lots with 31,815 spreads.  Prices have now rallied 19% since the 11340 low of the 1st of March without a pullback and have scored 11 consecutive days of higher highs.   The last time the market posted more than 11 days of higher highs, was a string of 15 days between August 8-Sep 1,2011, when the market traded from 235.30 to 290.85 basis the second month chart… 15 days later we were back to trading 235.65.  Different day different circumstances but it started with funds net short 13,000 lots and ended with them long 10,000 lots.  Let’s see what rabbit Brazil can pull out of the hat tomorrow.