Coffee Overbought After Surge LW
While cocoa has seen two negative daily results in a row, the market continues to consolidate near the high end of its June/August consolidation zone. If global risk sentiment can show some improvement, cocoa prices can extend a recovery move up to 2-month highs. Concern over high inflation levels in many developed economies continued to weigh on cocoa prices as that may reduce demand for discretionary items such as chocolate. While Euro zone and US equity markets posted moderate losses and the British Pound reached a new multi-year low, the Eurocurrency rebound from a 1-week low to post a moderate gain that provided carryover support to cocoa prices.
A combination of negative global risk sentiment and last week’s huge price gains combined to put coffee prices on the defensive early this week. The market continues to hold its ground in close proximity to last Thursday’s 6-month highs as bullish supply factors continue to underpin prices. Concern over high inflation levels has diminished out-of-home consumption prospects, and that continues to weigh on coffee prices.
December cotton closed lower on Monday but inside Friday’s range and near the upper end of the range of the past two weeks. The dollar reached its highest level since September 2002, making US cotton less attractively priced on the world market. Analysts point out that while the market has been supported in recent weeks as US crop prospects have gone down, we are approaching harvest, which could lead to some pressure on the market. Pakistan’s Planning Minister stated that 45% of the nation’s cotton crop washed away in floods.
While sugar prices could not extend last Friday’s rally for a second session, they are within striking distance of a new 6-week high and on-track for a positive monthly result. If they continue to receive carryover support from key outside markets, the market can trend up. Indications that India’s sugar exports this season will reach a record high above 11 million tonnes weighed on sugar prices early this week.
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