Blue line = BRLUSD
The market continued to plummet as it dropped 13.80c from its high with a net change of negative 11.15c. Prices had difficulties penetrating the 110.00 level but succeeded the day after the COT period, only to find support. The days that followed show a small degree of reversal especially yesterday as dips were opportunities and prices on the post close exceeded settlement. 4,010 lots EFS were posted which may represent commercial buying interest and may be the reason for yesterday’s strength. The weakness prior to yesterday however cannot be ignored.
The primary sellers were managed money but they were joined by swap dealers and small traders to a much smaller degree. 11 funds liquidated, including index funds, and 6 funds began going short. The managed money net position remains high at
almost 44,000 lots. Whether this suggests additional pressure is unknown. Every fund has its own strategy, parameters and limitations. It’s likely however that at least some segment of the funds’ OI will continue selling, at least until the market signals to stop and reverse. The buying however is interesting as well.
Commercials were present in a big way, as expected, both in the front month and in forwards and representing around 2/3 of the buying. The other 1/3 was large traders who bought new and covered shorts. The combination of this buying created strong support in the 110.00 area and provided for occasional rallies. But the fund selling was overpowering as it was consistent and programmed while the buying was not and created only short-lived strength. Commercials bought weakness all the way down with resting orders.
Robusta was not very engrossing this time around. It is worth noting that the intensity of fund selling in Arabica was not present in Robusta.
Spreads remained on the defensive in KC and firmed on Friday together with the outright strength.
The market’s direction is to be seen. Will Friday’s strength continue? Were the 4,010 lots of EFS a one time incident, or was the strength due simply to a Friday’s short covering. Or, was the Real the critical factor. Whatever the reason, what is certain is that support was present at the 110.00 level. As a result, the COT on its own stands neutral.
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