hail storm poem
As the chart shows, the correlation between the Real (blue line = BRLUSD) and the coffee market has been almost non-existent. We saw a buildup of shorts in the last few weeks of the COT report and this build up as continued as reflected in this latest report and in the OI. On Thursday of this week the OI dropped for the first time in a while and, as the chart indicates, prices rose. Friday was another up day and possibly we will see a drop in the OI for this day as well.
The increase in the OI that we see is positive for the market, insofar as volume and volatility. The build up of shorts has been a bullish indicator with regards to the COT. Fundamentals may be more on the bearish side as reports indicate a build up of stocks in producing countries as well as lower exports due to the covid virus. Better information coming from Brazil is in needed. But regardless of what data reveal, the bottom line is that selling is speculative and the buying has been, to a great degree, consumer related. We saw buying extending to the ‘22 months both, when the market traded to below 104.00 for the report period and again as it dropped to 107.25 on Thursday. The absence of algos allows the market to recover when such support emerges, eventually.
Spreads weakened as the market was pushed down in the front while the forward months were supported. As the market recovered spreads recovered as well. On Friday, spreads firmed without much resistance. The Sep20/Sep21 closed at -7.40c on the 5th and at -6.00c on Friday.
In spite of the fears of the supply chain interruptions, and the large fund selling, all groups are buyers, including long funds. The market looked good on Friday and the COT indicates further strength. Of course, other factors are in play.
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