Blue Line = BRLUSD
As Prices bounced off the 110.00 level, basis Sep, Dec managed a range of 9.00c and a net change of +7.45c to close at the high for the period. To dissect the COT may be difficult as option expiration, a large number of EFP/EFS posts and Sep roll related liquidation mask meaningful conclusions. Nevertheless, the market was substantially higher as every sector bought from commercials.
The Rabobank 3rd Quarter Outlook made an interesting observation:
“In the last four weeks, agri commodity prices, including coffee and sugar, made recent highs, supported by improving demand prospects, a weakening US dollar, but potentially also by investors trying to hedge equities and inflation with real assets like commodities. Commodity index funds have been slowly but steadily increasing the amount of agri commodities they buy – increasing their share of open interest from 16.5% at the end of June to 18.4% last week. In arabica, we saw a large increase only last week, and it is worth noting that many increasingly popular commodity ETFs could also be piling longs.”
And, as we look at the COT, we see a large increase of longs by Index and Managed Money. We see the swap dealers category increasing their longs, which of course could be either end users or institutional entities. Worth noting as well, as we pointed out last week, as the market dropped 17.55c from its highs, funds did not reverse but continued to buy. The picture is constructive but, from day to day, the market feels like it’s spinning its wheels. Corrections are pretty steep and commercial selling is obviously present. Now that expiration and FND are behind us we may see less erratic behavior and more revealing OI changes.
Spreads were mostly steady and reacted more to changes in the outright market. Warehouse stocks continue to drop but spreads have not really reacted with further strength. Increasing spec longs may have a dampening effect on spreads but we are facing a long stretch to November before we are again faced with another roll and major option expiration. CSO trading was quiet this week and bids on calls with strikes reflecting a backward market remain posted electronically and unchallenged.
The COT on its own, is telling us that the investment community may be committed to increasing their long positions. Commercials remain sellers but mostly options related. There has been some of what appears to be origin selling extending out to Dec22 as the Real weakened. For now we continue to have a steady market with resistance.
« Back to index