Blue Line = BRLUSD
The market began at the highs which had been the congestion level for the prior week and dropped to a new level of support at 120.00. Prices did dip to 118.75 but it proved to be a brief visit. Options expired and accounted for the drop in the supplemental OI. Index completed their rebalancing by again increasing their long position and emphasizing the long term positive investment sentiment in coffee, as in commodities in general.
The COT report confirms fund selling as longs liquidated and shorts were added. But the lead market, based on the stability of arbitrage prices, appears to be Robusta where funds noticeably added to their short positions, reversing to net short. Swap dealers bought in KC and may be part of the index/commercial formula somehow. During this period, the Nov Robusta OI swelled by 8,171 lots and by an additional 2,921 lots for the days following the report. It appears that the increase was mostly spreads linked to nearer months. The significance of the activity is unknown except that Nov is the beginning of harvest in Viet Nam. If anyone has a clue, please share.
For the days following the COT report we experienced a surge in prices as buying triggered the reversal of funds. This observation is based on market behavior only. The 130.00 level and higher proved to be a level of resistance, probably as commercials sold. There was a noticeable increase in selling in forwards as far as March23, probably by origin. As a result, forward spreads tightened while front spreads stayed wide as warehouse stocks continue to climb.
The combination of the COT report and market behavior is of a friendly tone. However, if the buying is strictly funds and the commercial and long selling remains constant, then the friendliness becomes questionable. Longer term, the market looks poised to continue higher. However, the conflict that exists between bulls and bears is one where both sides make valid arguments.
There are unreconciled issues, such as production vs. carryover stocks, covid related supply chain and covid related consumption. These topics have been argued in the forum. What is obvious in the market, as is in other markets, that, in spite of the interruptions in the physical market, the surge of the virus, and in vaccine delivery, the sentiment for markets is a positive one, at least for now.