Will Improved Weather Push Cocoa Prices Down?
IFC Markets | Mar 22, 2016 09:22AM ET
Weather improves in West Africa
Rains covered West African state of Côte d'Ivoire and cocoa crops may benefit from it. Côte d'Ivoire accounts for 35% of cocoa and another 24% are produced in the neighbouring Ghana. Will the improved weather conditions push cocoa prices down?
Cocoa prices advanced almost 14% since early February on dry weather. At the same time, the volume of cocoa shippings from Côte d'Ivoire fell only 0.7% to 1,226mln tonnes since October 1, 2015 to March 20, 2016, compared to season 2014/15. Another factor that may support the cocoa downtrend is the COCOBOD decision to allocate the additional 10.2mln nursery transplants of cocoa to the local farmers. Last year they received 50mln plants. Ghana is aiming at becoming the second to none among cocoa producers. Another African state, Cameroon, is planning to double cocoa production to 2020 compared to the current 230 thousand tonnes a year.
On the daily chart Cocoa: D1 is in uptrend and has come close to its lower boundary. The prices have been growing from the year low reached in early February and have reached the 200-day moving average line but failed to surpass it so far. The MACD and Parabolic indicators give signals to buy. The RSI is descending from the level of 70 and has formed negative divergence. The Bollinger bands® have widened a lot which means higher volatility. The bearish momentum may develop in case the cocoa prices fall below the last fractal low, the Parabolic signal, 1st Fibonacci retracement and support line of the uptrend at 3013. This level may serve the point of entry. The initial risk-limit may be placed below the last fractal high and the 200-day moving average at 3141. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 3141 without reaching the order at 3013, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Position Sell Sell stop below 3013 Stop loss above 3141
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.