Coffee price enters the overbought territory at 2016 high

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on May 31, 2021
  • Coffee price is at $162.25, up by 4.51% with an RSI of 72.
  • Progress in vaccination programs in US, UK, and beyond has boosted the rally.
  • The downtrend in USD/BRL, currently down by 0.29%, has also been a bullish catalyst for coffee price.

Coffee price is at its highest level since November 2016. The surge has been fuelled by the weakening US dollar and rising demand.

coffee price

Weakening US dollar

Coffee price has been finding support in the weakening US dollar. The declining value of the greenback creates a favorable environment for buyers with other currencies. As a result, it heightens the demand for the commodity and subsequently triggers a rise in price.

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With Brazil being the leading producer and exporter of coffee in the world, a strong Brazilian real is usually a bullish catalyst for coffee price. USD/BRL is at 5.22, where it ended Friday’s session down by 0.29% with an RSI of 26. Since the beginning of the second quarter, it has declined by around 11%.

Rising demand

The reopening of economies has further boosted coffee price. According to the CDC figures released on Saturday, 50.3% of the US population has gotten at least one coronavirus jab. About 40% of the population has been fully vaccinated. Besides, new infections have been falling after the rise recorded in mid-April. Last week, the country’s 7-day average was over 21,600 cases per day. This represents a decline of 69% from the year’s spring peak of over 71,200 daily cases in mid-April. Subsequently, more states are easing the previously enacted restrictions.  

In the UK, Prime Minister Boris Johnson is confident that the country’s full reopening scheduled for 21st June will go on. In a recent interview, he stated that the current data does not show any signs that the UK government should deviate from its road map. The economic recovery in the US, UK, and other parts of the world has heightened demand for coffee in commercial establishments like hotels and coffee shops.

Coffee price technical outlook

Coffee price ended the week at its highest level since November 2016. After hitting an intraday high of 163.35, it pulled back to close Friday’s session at 162.35, up by 4.51%. On a daily chart, it is trading above the 25 and 50-day exponential moving averages. With an RSI of 72, the soft commodity is in the overbought territory. Since the beginning of the year’s second quarter, Coffee C futures have surged by 34.86%.  

In the new week, I expect coffee price to remain on an uptrend. It may pull back to 160 before surging higher. If the bulls manage to push the price beyond the week’s high of 163, the next target will be at 170. However, this thesis will be invalidated by a move below 160.

coffee price
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