What the greenback does, ultimately, the cocoa market does the opposite. This is not definitive, but if you were to overlay the 2 charts, they would look like a mirror image. Being the U.S. dollar has appreciated 3.2% in the last 3 weeks, it is no surprise that cocoa has depreciated 7.8%. Of course, there are other underlying factors such as a large crop and potential seasonal factors, lack of demand, etc. What I have noticed over the years is there is an inverse relationship… I am not of the opinion this could be used as an effective tool on a day trade or scalps, but for overall trends, there seems to be an inverse relationship.
That being said, I do feel the dollar is over-extended to the upside and cocoa to the downside. I have advised scaling into bullish exposure in recent weeks. Stochastics on the daily chart, as seen above, are screaming over sold and as of this post, prices are probing the 9 day MA -- identified by the red line. Further confirmation would play out on a trade above the 20 day MA -- identified by the light blue line.
While I am not as bullish as I was several weeks ago, I do still see it as a viable possibility that we trade north of 2300 in May futures in the coming week/months. This would represent a 7.5% appreciation from current levels.
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