This week in macroeconomics saw a drop in the US dollar index on the basis of poor economic performance in the second quarter, a middling US stock market as tech companies compensating for flops in the oil industry, and the beginning of the Bank of Japan’s purchase of exchange traded funds to support their economy. The US GDP posted 1.2% growth in the second quarter versus an expected 2%, a disappointment that may restrain the Federal Reserve’s decision to raise interest rates. Little fundamental news for coffee in the past week, with technical parameters and currencies taking center stage in the C market. Despite occupying a volatile range from $1.3905/lb to $1.5480/lb, C pricing posted minimal gains this month with a mere $0.0055 increase overall. Happy Friday.
As noted on the hourly chart above, most of this week’s action was contained in a lackluster four cent range until today’s softening of US dollar values sparked an upward test. Although C market pricing gapped marginally higher on the opening of both the 27th and 28th (see circled areas above), the lack of follow-through forced the market to retrace its steps. Today’s stronger upside performance placed C pricing squarely in the mid-range of the short-term configuration.
The circled area in the daily chart above shows a well-defined head and shoulders formation, in which an initial peak forms a shoulder, then a second, higher peak forms the head, followed by a third peak that only reaches the level of the first forming the second shoulder. From the standpoint of technical analysis, this formation is an indication that an upward trend is reversing and we could apply this analysis to forecast that prices will fail to break the $1.4685 resistance and return to the $1.3880 baseline, which is further reinforced as the exact midline of the recent Fibonacci retracement range. Given a lack of fundamental news, the market appears happy to navigate this range and next week’s news cycle will define how closely pricing follows theory.