Blue Line = BRLUSD
The market touched the low of 106.20 on the first day of the COT report and showed promise by rallying to its high of 113.35, but only to meet intense and competing selling. Prices dropped and remained volatile as low prices attracted buyers as well. The area below 107.00 was revisited twice after the report and ended there on Friday during the post-close. Although the range was 7.15c for the period, the total of each dayís range was 19.00c, reflecting the back and forth fluctuations of prices. And so the changes in the report are minimal but nevertheless revealing.
Commercials were net buyers but not by much compared to past reports, indicating that the majority of their activity was option related. Swap dealers sold which could be commercial or institutional. Managed money continues to sell longs and add shorts but the net change for the week was less then expected. This could indicate that there was some reversal to the buy side as momentum changed during the first half of the period. Managed Money remains long in KC with 25,731 lots. In RC however, funds are now short.
Funds in RC reversed by selling 9,653 lots. Large traders sold 1,300 lots and commercials bought almost everything that was sold. The other contrast between the two markets is that the delta position in KC dropped while in RC it increased. Front month OI dropped in both markets while the total OI increased in RC while KCís dropped.
Since the report, the market continued to behave erratically but eventually succumbed to weakness. Dec liquidation is certainly on the mind of traders but it appears that RC is credited more for the weakness as the arbitrage remained in a tight range and the bulk of selling by funds took place in this market. KC closed higher for the period while RC was lower. The arbitrage ended at 54.62 on Tuesday and at 49.51 on Friday, indicating a relatively weaker KC since the report, possibly signifying that the RC selling has subsided. We will have to see.
Spreads have been reacting to changes in outright prices. But the DecMar remains on the defensive mostly. The Dec OI is probably between 90k and 85k after Fridayís business so we may see further weakness in the front spread, especially as we approach roll/notice season.
In conclusion it seems that the market is unable to follow through with any strength and is closely reactive to changes in the Real. However, as evident, commercial support is present in both markets. Weather appears to be irrelevant as are reports of damage in the forum. We will have to see what is disseminated by the usual production reporters when the supposed damage will be better advertised.
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