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Blue Line = BRLUSD
Prices began at the highs of the period as the general weakness of the market continued. The market managed a range of 5.15c and a net change of -2.65c with volume averaging in the mid 30k. The H OI continued to drop as liquidation took place in the form of both outright and rolling. Spread activity was relatively high as the front spreads began to show some positivity while forward spreads remained close to unchanged but active. Forward selling, possibly origin, was present on strength.
The COT report shows small changes for the sectors as a result of the two way market. Commercials were slight sellers possibly indicating that they sold more on market strength and bought back on its weakness. Managed money shows new business on both sides hinting that the weakness triggered a reversal from buyers to sellers. In Robusta, where funds are not algorithmic as they are in Arabica, were more aggressive in continuing to build their short position. Index funds continued to buy, possibly ending their rebalancing and swap dealers covered, likely institutional, while large traders liquidated longs.
The market is telling us that it is undecided on trajectory. The days following the COT show a continuation of a two way pattern accented by weakness with a similar range as the COT period. 122.00 seems to attract support. It is likely that support will increase if the market were to ease towards 120.00, with possible stops below 122.00.
February will bring an increase of March liquidation as notice season is on the horizon and option expiration for the H contract to take place on the 10th. As usual, striking prices will be key support/resistance levels. Considering the recent volatility and participation in the market, it is likely that prices will remain between the general areas if 120.00 and 125.00.
Welcome to the forum Coffee Broker and foaraman. Your posts have been interesting. In response to your question regarding market direction in light of the lower production estimates for 21/22, it is one that has been debated in the forum and is a valid question. In my view, any developments in the market are discounted in futures. I donít dismiss the possibility that the coffee community has not yet realized the gravity of the damage that took place this summer and autumn. However, the 20/21 production has added to an already significant carryover stock. Brazil continues to add to ICE warehouses in an unprecedented way. We can look at past years and possibly make a comparison to the present.
97/98 was a period of serious shortage and the market immediately reacted. In 14/15 the market rallied as the drought in the northeast was developing but ignoring the 20mm bags, or so, of stocks on hand. Now we have an already weakened Real that is trying to recover with the economy in Brazil, and globally, being weakened. Covid is a factor that presents complexities in both the supply chain as in the consumer end. This too has been debated in the forum.
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