Blue line = BRLUSD
The market had a range of 8.25c but the net change was a mere increase .70c during the four day period in KC. The sharp dips and the strong recoveries provide opportunities for day traders but the market is difficult for medium term traders.
The picture is similar to what we have been seeing every week on the COT, managed money buying and mostly commercial selling. The selling consists of option hedging and possibly origin. If origin is indeed active it is so in the immediate months and not far forward. Other sellers were large and small traders, the first selling longs and the latter selling mostly new. Stops of course were hit possibly triggered by sometimes heavy commercial selling and other selling. The buying continues to be interesting.
Index continued to be active buyers. I again emphasize the significance of funds not reversing on sharp drops, including on the last day of the report when the market had a range of 7.20c and a low of 127.20. However, the number of long funds did not increase this week. In RC, no new long funds added but instead there was liquidation by one fund. Short funds did add. The increased position that we see on the buy side in both markets is due to already established long funds. Are there no other funds joining the long party? Short covering is still taking place by funds so we’ll see what the next COT period brings. For the remainder of this week we saw a steady recovery possibly related to Friday’s option expiration. Put longs and delta shorts may have been covering. On Friday the market settled at 132.45, only .05 below the closest strike. All of the of the 2,671 calls at the 132.50 strike were abandoned and all of the 220 puts were exercised.
The COT itself is mildly bullish and only so because of the increase of buying by standing funds. If new funds do not enter the market on the long side, then we may see lower prices. However, we can’t yet conclude this with one abbreviated week. The market is behaving well when it recovers from the steep dips. Investment in commodities seems to be the fashion. Based on financial reports, the general view is that we are entering the “Age of Diorder”. Bloomberg Opinion neatly outlines this in the following way:
1. The first era of globalization, 1860-1914
2. The Great Wars and Depression, 1914-1945
3. Breton Woods and the return to gold-based monetary system, 1945-1971
4. The start of fiat money and high inflation of the 1970s, 1971-1980
5. The second era of globalization, 1980-2020?
6. Age of Disorder, 2020?-???
The question marks are part of the editorial and for sure there are a lot of uncertainties ahead of us. To delve into this would require a much longer report which would include politics - not a topic welcomed in the forum. What we know for sure is that governments have made inflation likely by lowering interest rates, flooding the market with money and effectively devaluing the dollar. Add to this the pandemic, political polarization, climate issues and trade turmoil and the “Age of Disorder” is here.
Spreads dropped in value even during steady times in the outright market. Spread tightness was caused by dropping warehouse stocks. We will have to see if further strength will arrive in spreads or if we have seen the highs.
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