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The Sugar No 11 contract, the benchmark contract for raw sugar futures, skyrocketed 9.5 per cent to a six-month high to finish the week at 18.48 cents a pound. On October 1, the contract jumped 4.8 per cent with an upward gap, decisively breaching its 200-day moving average. However, on the year-to-date basis, the contract is down 5.3 per cent.
This rally occurred as the market absorbed the biggest delivery against the October contract expiry and on signs of lower production in Brazil due to the impact of rains on cane production and sugar content.
LONG-TERM VIEW
The Sugar 11 contract has been in a long-term downtrend since peaking at the high of 36 cents registered in March 2011. This downtrend will remain in place as long as the contract trades below its significant long-term resistance band between 26 and 27 cents. An emphatic breakthrough of this resistance band will alter the long-term trend and take the commodity higher to 32 cents and then to 34 cents in the long-term time frame. However, failure to rally beyond the resistance band will confine the commodity to hovering in the broad range between 16 and 27 cents.
On the downside, the contract has key long-term support at 16 cents, from which it has reversed this July. A decisive fall below this long-term support will pave the way for a decline to 14 cents over the long-term. Key immediate long-term support is at 17 cents and resistances are positioned at 20 cents and 23 cents.
MEDIUM-TERM VIEW
The Sugar 11 contract has been on an intermediate-term downtrend since encountering key resistance at 26.7 cents in February 2012. Nevertheless, the contract found support at its significant long-term base level of 16 cents in this June. After a five-month sideways consolidation in the band between 16 cents and 17.3 cents, the contract broke out upwards last week. The commodity bottomed out this July at 16 cents and has been on a nascent short-term uptrend. The reversal was triggered by positive divergence in daily and weekly indicators. Sugar decisively breached its 200-day moving average last week and is hovering well above its 50- and 200-day moving averages.
But, the contract is facing key resistance ahead at 19 cents which it failed to surpass in March.
A strong breakout of this resistance will take the commodity higher to 20 or 20.4 cents in the short- to medium-term. Next resistance is at 21.6 cents. To revise this downtrend, the commodity needs to rally above the key resistance at 21.6 levels. In that scenario, sugar can trend higher to 23 cents in the forthcoming months.
On the other hand, fall below its immediate support at 17.6 cents will pull the commodity lower to 16.8 cents and then to 16 cents in the medium-term.
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