2018 was a rough year for Coffee (JO, BJO) producers as the commodity’s value fell by a whopping 30%. Moreover, the beginning of 2019 turned out to be similar as from mid-January the price of coffee has once again been in sharp descent. Thus, the big question now is whether the decline in prices has come to an end or not. I believe the commodity is at a crossroads where investors will have to keenly observe if the price of coffee holds the 50% Fibonacci support level. Hence, to ascertain the likelihood of all scenarios, I will look at the fundamental news affecting the commodity, whilst, analyzing the charts using technical analysis tools.

Fundamental news:

Excessive supply:

I expect the commodity to hold the 50% Fibonacci support level after which it will have a bullish ascent. I say this as the coffee market in 2018 was facing an oversupply problem that caused the price of the commodity to crash. However, the commodity’s supply is now back to normal but the production level of this year’s Arabica crop is expected to be less generous. This in turn will cause the prices to shift upwards. However, we must still wait and see if the commodity can hold the 50% Fibonacci support level before going long on coffee.

Robusta Coffee Production:

Robusta coffee is primarily utilized in making instant coffee or as an addition to other blends. Thus, if there is a problem with the supply of Robusta beans then we can expect the price to rise across the board. I say this as Robusta coffee beans are being roasted before they are even plucked due to high heat levels in Brazil. Because of this, Robusta prices are expected to rise to $1,775 per ton in 2019. Therefore, I expect this to cause the price of coffee to hold the 50% Fibonacci support level which will cause a bullish reversal to occur.

Vietnamese farmers:

Vietnamese farmers last week refused to sell their coffee beans due to lower prices. Because of this, I expect the price to slowly rise as this will cause a supply reduction. Traders expect the export levels of Vietnamese coffee to decline as early as March or April. This in turn will provide the bulls with some much-needed support.

Technical analysis:

Weekly chart:

Coffee Daily Chart

The commodity’s weekly chart indicates that in the coming weeks, the price of coffee ought to provide investors with a clear direction for the rest of 2019. This is as I believe the commodity is at a critical crossroad as it approaches the 50% Fibonacci support level. I chose to highlight this as I believe if the commodity does hold this level then investors can expect a strong bullish reversal. However, if the commodity does break below the 50% Fibonacci support level then there will be nothing stopping it from falling till the 100% Fibonacci support level. Nevertheless, I expect the 50% Fibonacci support level to hold as the candle patterns have come smaller and the fall has slowed down. This, as the commodity has reached the 38.2% Fibonacci support level at 96.43. Moreover, I do not expect the 50% Fibonacci support level to be broken as this is a long-term support zone.

On the price target front, I expect the commodity to hold the 50% Fibonacci support level at 93.18. If this does occur, then I believe the price of the commodity will rise until the range between the 78.6% and 100% Fibonacci resistance levels. The 78.6% Fibonacci resistance level is at 105.11, while, the 100% Fibonacci resistance level is at 107.58. However, if the commodity does break below the 50% Fibonacci support level, then I expect it to fall until the 100% Fibonacci support level at 79.38.

On the indicator facet, the long-term RSI has nearly bottomed out, indicating that the downward descent is about to come to an end. Due to this, we can expect the RSI to flatten in the coming weeks.

The big picture:

In conclusion, I am leaning toward the bears being in the driver’s seat for the next one to two weeks. After this, I believe the bulls will take control of the commodity for the long haul. This notion of mine is fueled by the fact that the technicals and fundamentals support a bullish reversal. However, whichever way you do decide to trade, make sure you utilize trailing stops, as this will aid in capital preservation.

Good luck trading.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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