Arabica coffee prices pause after major rally
Head of Commodity Strategy
Summary: Arabica coffee prices soared by nearly 33% over the course of the past month, but the rally has now paused after hedge funds cut their record short position in half.
In the weeks and months up until this event, hedge funds had been accumulating a record and ultimately unsustainable short position. Hedge funds will continue to sell into weakness – or buy into strength – until the technical and/or fundamental picture changes. In this case, it was primarily a change in the technical outlook that created the mad rush towards the exit.
During a four-week period up until October 16 hedge funds cut their net-short in half. With that, the need to continue buying has been reduced, at least as long a renewed upside push above $1.26/lb is avoided.
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