(One final explanation about the commercialsí position:
As we know, spread activity is included in the commercial sector and the small traders sector as individual legs, unlike the other sectors in which spreads are reported as spreads. The current long commercial position is 115,281 lots and a short position of 116,914 lots, leaving 1,633 lots net short. The buy side includes potentially outright longs, hedges against options, consumer purchases and the buy side of spreads. The sell side of course consists of potential outright shorts, sales against options, origin sales and the sell side of spreads. So if commercials increase their long spread position for example, and they liquidate longs by the same number, the COT would show no change on the buy side. So the 11,412 new sales by commercials may not be all outrights. They could have liquidated longs and added new sales and arrive at the same net. The net, of course, is always a reliable number.)
Continuing with the report, there is evidence that origin selling is present. Every day we see activity in the far forward months whether as outright trading or EFP posts. The initiators of the activity are sellers as noticed by the rising spread values across the board. With the generally weak Real it would make sense for producers to increase their hedging.
The remainder of the week proved to be even more impressive as the market continued climbing and gained an additional 9 cents or so. Buyers were again funds but itís likely that other shorts were covering including delta shorts. It appears that the time for complacency is over. Options often contain the range but when the market is volatile, writers are forced to cover as we see option implied volatility and demand rising dramatically. The roll will be starting this week, if we havenít yet started. On June 13th is the July option expiration. Volatility may increase, or may lessen.
As funds cover the need to roll decreases. The JulSep which traded up to -2.15 settled at -2,50, in a rising outright market. The COT shows an increase of spreads by by specs of 7,142 leaving a total spec position of 100,243 spreads. But because of forward selling, spreads other than the front are strong. The Jul20Sep20 settled at -1.55. The decreasing warehouse stocks may be a factor with the spreads. Together with the high number of EFP it seems that there is an active physical market.
The skepticism that we have developed from a market that has disappointed for so long may be fading but is not entirely gone. Options expiration and the roll may make markets more contained between strikes yet more unpredictable. So far the biggest correction that we had this week was on Friday as the market dropped from the 101.00 area to 99.05, and the selling was intense. Then the Real opened dipped and reversed adding fuel to the buy side. In the early hours on Friday CME June Real equaled over 4.000 in USDBRL. Spot closed at 3.9218. The Real is certainly a contributor. Funds should continue to cover and will probably go long.
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