Blue Line = BRLUSD
The market began at the lows and ended at the highs, only to continue higher after the COT period, and yielding both a range and a positive change of prices of 9.50c. The changes of the COT report reflect the liquidation of Dec as well as open hedges matched with exercised options. The large trader category, for example, shows 8,112 lots of longs liquidated. It could be assumed, at least in part, that this number represents pre-existing longs matched with exercised puts. We also see spread liquidation in all categories including small traders. It is difficult to come to any conclusions by looking at the Arabica report but, very likely, what we see in the Robusta report is similar to what took place in the market in Arabica that caused a move of 9.50c.
New buying and a disproportionate number of short covering was done by small traders and mostly by funds. Large traders and mostly commercials sold longs thus creating a resistance. Another clue is the arbitrage which shows a sharp increase late in the period, indicating that Robusta lagged Arabica as the market moved sharply higher. Please note that the arb numbers represent Jan vs. March but the picture would be the same if H vs. H was used. For the rest of the week the strength continued, until Friday.
The indications were there that a top was emerging. Selling was very intense as commercials and others competed. Origin was present. Even though the Real was strong, the currency is still at a low level against the $. And, as we see on the chart, the Real corrected downward on Friday. In addition to the observation that the selling presented a hinderance to higher prices, Nagual displayed an overbought situation and JuanV gave a vivid account of the market, followed by a projection by Ned of a correction. Now we need to see if Friday’s drop was a correction or reversal. Opinions are certainly welcomed.
There was support on Friday at the 118.00 level but it’s very possible that funds have now reverted to selling. Will there be commercial support? Delta buying will be present but what about forward consumer buying? The OI showed liquidation on Wednesday’s report and short covering matched with new selling on Thursday. It doesn’t seem however that a big short position was created.
The fundamentals may be bullish as damage reports are increasing. The extent of damage to part of the Brazilian crop is uncertain just as the consumption numbers are. Covid is once again increasing but the consumption situation seems to be remaining constant. Cafés may not be patronized but online demand and supermarkets continue to flourish, imo. Fundamentals are not the only factors however. Technicals, market behavior and currency are equally important. The immediate perceptions of traders are more relevant than long term perceptions for day to day trading. So please, as Orb advises, stop resenting others’ views. There are many different types of traders and long term and short term traders can have different views and coexist.