Morgan Stanley Coffee Report

Both London and New York gapped lower on the opening (RCN 1691-1690, KCN 13225-13215),and, while London managed to close the gap, New York’s proved to be the high for the trading session as the commodity complex went on the defensive in the face of a strengthening dollar.  Brazil’s real led the selloff among major currencies, falling 1.5% (3.5450 at print) as investors priced in the probability for rising interest rates, following a spate of modestly encouraging economic readings.  Short term specs were the best sellers on the day as the market found resistance at the upper end of the trend channel while systems buyers disengaged. Managed money and trade express apprehension in chasing a market that has rallied 16 cents higher (13.7%) since the 4th of May and the state of Brazil’s harvest is inconclusively debated.  Today was the first day in 10 the Arabica market traded a lower low and a gap now exists above (13215-13225) and below (12660-12665) and while some encouragement can be found in holding Tuesday’s low, the sense is buyers of choice would like to see a greater pullback for reentry.