Blue Line = BRLUSD

The market showed early promise as it traded above 130.00, but, as usual, selling became intense, buying could not satisfy the selling and the market remained in a weak state. Prices began at the low and rallied 10.35c to a high of 131.75 and a close around mid level, up 5.75c.

As we look at the COT report, we see several activities going on. Index continued to buy new, as other managed money also bought new but covered shorts as well. The number of long funds is approaching twice as many short funds. In RC, note that funds continue to sell. The elevated arbitrage levels illustrate that in spite of whatever trajectory KC takes, RC remains defensive. Of course, RC had a lot of help from Swap Dealers, likely institutional, and also emphasizing the bearish sentiment of Robusta as high production number continue to circulate.

The supplemental OI changed substantially and it looks like delta was bought by a spec sector in the form of call spreads. Please note that the H OI dropped while the total OI increased indicating rolling taking place, or outright liquidation. It continued to be decreased on Wednesday following the report.

Spreads remain soft in the front and mixed in the forward. Certified stocks continue to climb, reflecting excess Brazilian coffee.

The COT on its own is neutral only because of the continued buying by funds. The behavior of the market however doesn’t seem bullish at all. Commercials are keeping a lid on the prices forcing some longs out. Robusta is applying pressure. Whether the lower crop in Arabica for 21/22 is priced into the market or not, it is irrelevant at least for now. Finally, the reversal of KC funds to selling is on the radar screen if it has not yet happened.