Inverse relationship with cocoa to the US dollar

3-8-13 CO.jpgYtd cocoa prices are off just better than 6% but high to low prices have collapsed trading lower by better than 20% from their highs last fall. It is premature to draw a line in the sand at 2050 but it appears that we are finding buying interest this week. In the last 2 days prices have leaped 4% and as of this post they are trading at their 20 day MA; identified by the light blue line. This pivot point has served as resistance now for several months so to see consecutive closes above that level would be progress. I like the idea of scaling into bullish trade in July.
I have pointed out in past commentaries the inverse relationship with cocoa to the US dollar. The fact that the greenback is appreciating today breaking out to fresh 6 month highs and cocoa is still well bid perhaps there is a divergence in this correlation. Let’s see if the dollar can back off in the coming weeks if the relationship re-emerges. A move back to the 38.2% Fibonacci level represents a gain of 8.5% and I see that as viable over the life of the July contract.
Top producers of cocoa in the Ivory Coast and Ghana are both out of the market at the moment but are likely to need to sell in the next few weeks, limiting the scope for a major rally in my opinion. Just maybe the expectation of future sales has been factored into the market with the most recent decline. I do not see futures moving much beyond 2300/2350 with origin selling from higher levels. We would need to see an increase in demand which is improbable, a supply crunch brought about by crop damage or civil unrest…both of which are possible but unpredictable. View this as a trade as opposed to the start of a bull market in my opinion. Always remember commodities do not move up or down in a straight line.
To discuss in more detail this chart or any other you can reach me at: mbradbard@rcmam.com or 954-929-9997
Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific’s investor’s needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.

,

No comments yet.

Leave a Reply