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Blue Line = BRLUSD

The market continued in light volume but not without volatility. The COT report includes the first two trading days of the new year. On the 4th, the market made its high of 129.40 and over 4,000 EFS were posted, possibly related to index rebalancing. The COT shows an increase of longs in the Index sector. On the 5th, the last day of the report, the market made its lows for the period. The range was 7.10c with a net change of -.30c.

As index bought other managed money sold new. It is unusual for funds to sell in an up market. Possibly, the drop lower triggered selling. If so, it may have continued the days after the COT including Friday as the market penetrated 120.00. Following index buying, small traders were notable buyers as well.

The market continues to perplex traders. The Friday activity was partly related to option expiration and the strength at the end of the day could have been short covering, possibly delta shorts mixed in. There was no unusual activity in the options exercise report and exercised positions were not unusually large. The 120.00 level proved to be an area of support. We’ll see how the market does on Monday but personally it is difficult to visualize any significant drop below 120.00. Spreads remain weak as warehouse stocks rise due to the large Brazil output of last year.