Blue line = BRLUSD
The market again began at the lows and closed at the highs in a range of 11.55c and a net move of 11.40c higher. The reason for the strength is evident on the COT report as is the reason for the undermining of this strength that caused the market to turn on the days that followed the report.
The buyers in both markets were of course funds. This sector turned their short position into a positive one in KC and almost a flat position in RC. The number of funds has turned long in both markets. The sellers were all the other sectors in both KC and RC, most of which sold longs and went short. Also in both markets, funds bought new as well confirming their momentum strategy. The combination of long liquidation and new selling, overwhelmingly by commercials and some of which is origin, proved to be too much for the market, as we have seen again and again for the last few years. Whether the change in direction is a correction or a reversal is to be seen but itís likely that a change in the market from a high of 127.25 to Fridayís low of 113.65 did at least signal the funds to revert to selling. Of course, support will be found as and if prices move lower. Fundamentally, the very good WSJ article posted by Cooper on the 4th of August summarizes aptly what the condition of todayís market is.
Spreads have been moving dramatically. In Robusta, the SepNov traded from a negative 14 to a positive 18, with a range much wider. SepDec KC traded from -2.95 to -1.35, late in the week, and is back to -2.45. The Sep21Dec21 traded at a premium. The behavior of spreads may be puzzling but it is providing good trading opportunities. Presently, the DecMar which had been a source of strong buying by trade and others is weakening and deviating from the MarMay, in terms of points per month, a behavior similar to the SepDecMar. As we look at the COT we see all groups involved in spreads including small traders and index. There has also been significant origin selling as we see forward selling and forward non exchange postings, causing spreads to strengthen at times. With prices lower and a firm Real there will be less of this selling.
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