Blue Line = BRLUSD
The market had a range of 7.85c and ended 1.90c lower. Managed money funds were sellers in both markets, with RC taking the lead. Selling was in the form of liquidation and new shorts in both markets as well. Also in both markets, commercials were the principal buyers and were able to prevent prices from falling sharply. Following the COT period, prices were firm and remained mostly above 110.00.
The motivation of the buying in the last few days could possibly be linked to the dryness in Brazil. Rains have been light and erratic. The buying was also certainly related to option expiration on Friday. There were no surprises by the way. Prices settled between strikes and all options were exercised and abandoned as expected.
Any residual activity as a result of expiration will likely be light. The bigger question is how do the funds stand in terms of momentum. The last three days have shown a shift in direction but is it a sufficient thrust for a reversal? If not, what level in prices will be needed to cause a reversal by funds in both markets. The faith in the supposed damage of the ‘21 plants, and in the continued dryness, will be tested as we witness the behavior of commercials more so than that of managed money in the coming days, if prices stay the course. The COT on its own is bullish only because of the limited reaction of prices relative to the ample selling. Even if prices ease, commercial support will be present in the front and in forwards.
Spreads were under pressure until Friday, at which time, from March onward they became firm. DecMar remained weak at -2.25 as -2.75 and -3.00 puts were purchased in the last couple of sessions.
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