The number of traders shows many changes by the different sectors. Commercials dropped on both sides which could just be spreads in part. Swap dealers covered and went long, as did large traders. The most significant change is in managed money. Nine funds liquidated outright longs. But amidst all the liquidation that we see, there is new business going on. The number of short funds has been flat for some time while their OI has increased dramatically. This week’s report shows an increase in the number of funds short as well as an increase in the number of lots short.
Commercials covered which could be in part outright shorts but is mostly delta hedging. But we see in the market that they are buying forwards. My view is that this is roaster/processor/merchant buying forwards out to Sep21. The low Real rate has also prompted possible origin selling in the forwards. Managed Money liquidated some longs but they mostly added shorts. Large traders mostly liquidated longs.
The week was one where volume was dominated by spreads. Intense selling continues in a market that is not greatly impacted due to the very good support by commercials. 17 funds sold, although the 9 funds that liquidated longs amounted to only 1,595 lots. Yet MM longs have been selling for a few weeks.
In the past such a build up of MM selling would be considered friendly to the market. But what is their risk? If funds need to cover there will be plenty of selling. We certainly shouldn’t take anything for granted but it doesn’t appear that the market is even capable of moving higher, much less likely to reverse its negative trend. For the remainder of the week, we have an extension of the COT, Sep liquidation with much of the same activity by commercials and by funds. Bids are plentiful in the market. Some are for keeps but most will reappear as offers.
Robusta shows the same pattern as Arabica but to a lesser degree. Both markets show elevated EFP/EFS posts indicating the exchange of hedges for customized physical and showing that the market is a viable medium for commercial activity.
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