Mounting tension ahead of next month’s presidential election in Ivory Coast, coupled with a drier-than-normal little dry season—not to mention a significant weakening of the dollar—have combined to support continued fund buying of cocoa.
In its most recent report, the Commodity Futures Trading Commission (CFTC) showed a surge in renewed buying, with specs adding another 10,000 lots to their existing long position. Political tensions are growing ahead of what is expected to be a contentious election in which Alassane Ouattara runs for a third term against established opponents. This could create a crisis—as occurred after the 2010 election, triggering a temporary ban on cocoa exports.
Likewise, seeking to defuse some of the tension, the Ouattara administration announced the release of several family members and allies of one of Ouattara’s political rivals, former Prime Minister Guillaume Soro. Once an ally of Ouattara, Soro has remained outside the country due to the threat of arrest following an in-absentia conviction on embezzlement charges. Ouattara’s government has also accused Soro of complicity in the planning of a coup, though these allegations are viewed with skepticism by some Ivorian and international observers.
The charts may suggest that cocoa has reached an exhaustion point: Signs of a potential double top formed on Sep. 21, indicating we could see a test to the downside. The first level of support to test would be the 200-day moving average around $2,424 per MT, assuming specs can be induced to start selling out their position.