Blue line = BRLUSD
The market dropped 11.20c from its high of 106.00 made on the first day of the COT report. At the lows the market found support and has been holding these levels while exhibiting moments of strength.
We see in the COT who is responsible for the weakness. The number of funds selling has increased dramatically. The OI increased by 24,360 lots during the period and an additional 4,515 lots after the COT report, excluding Friday. We see the spread OI increasing but the funds short selling accounts for 60% of the OI increase. The buyers were every other sector especially commercials. So we can safely assume that as the OI increases funds are selling new and that commercials are buying the front months and forwards, probably consumers. We can also assume that the steady episodes are other sectors buying. As we have seen, commercials have the luxury of waiting patiently for their bids to get hit for some time. We have also seen in the past that when we have such a preponderance of fund new selling, the market moves sharply higher after such selling ceases. For now, funds are still selling and have plenty of ammo still as they are 8,474 lots net short and 41,297 lots gross short. But, when we see the OI flatten or decrease, I believe that itís time to buy.
Other factors in the market are currency, weather and the movement of coffee. The Real has been very strong as Cooper reported and is back below 5.000 but its impact in the coffee market is null so far. If there are shorts in coffee who are expecting the Real to drop to USDBRL 6.000+, then they are wrong so far. We are waiting for winter to progress to see if it will bring any serious cold. In spite of reported lower exports in several countries, there seems to be sufficient supply. As the world opens up, and incidents of the virus remain on a downward trend, consumption will return to normal. Whatever may influence the market, the COT on its own merit is bullish and could be explosive. Also keep in mind Nagualís comments on notice season and July option expiration next week. Striking prices will be points of support/resistance.