Blue line = BRLUSD
The chart shows that the market remained in a narrow range with 105.00 as a support level. It is also evident that it had no correlation with the Real. The market itself looked steady mostly. Volume was light but in looking at the COT there are a few highlights.
The buyers were a combination of commercial, small traders and, mostly, large traders. But what appears to have broken any strength that we saw, and led to weakness for the remainder of the week, was continued selling by index, managed money and swap dealers, which is likely institutional. We can see this last group having the same stance in robusta. Managed money continues to increase their net short position in that market as well.
Goldman Sachs has been making several comments on emerging markets and the USDBRL specifically going to above 6.0000. The political situation for Bolsonaro is very precarious not only because of his denial of covid but also for criminal implications. Add to this the consequences of the virus itself, such as the disruption of the food chain, and we have sufficient reasons for institutional selling, if it is such on the COT, to be initiated.
The question of what happens to the price of coffee as a result of the food chain interruption is being discussed in the forum. I do not think we have yet reconciled the issue. More input is needed.
The remainder of the week brought more selling, increased volume and increased buying especially in the forward months. Spreads got hit as a result of forward bids and front selling but there has also been outright spread selling more in the spreads that are linked to CSOs, July20 to Mar21. In talking to other traders, there is a concern that the flow of coffee will be interrupted. Brazil has become the epicenter of the covid and what will happen if the country goes into lockdown?
Based on the COT only, the market is becoming more bullish as specs are increasing their positions and commercials are buying, as a general rule. But interpreting market behavior we see a market that cannot rally. Repeatedly, strength provides an opportunity for both longs and shorts to sell to the point that any price appreciation is not only negated but losses are added. dirt may be right that we may be seeing a bottom but the market needs to prove itself. Whatever selling comes in however, will be met with large bids across the board, mostly by commercials.
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