Blue Line = BRLUSD
The market began in a slow steady tone as it made its high for the period at slightly above the 125.00 strike and its low slightly above the 120.00 strike, rendering a range of 5.65c and a net change of -.35c. As we see in the COT report, the March OI dropped precipitously in KC as March options expired and as the roll greatly intensified. It continued to drop sharply as the week continued. For the COT period, the total OI was about unchanged, indicating that the liquidation in March was mostly as a result of rolling from March into forwards. Strangely, the MarMay spread moved only slightly, from a low of -2.10 to a high of -1.85 in spite of the high liquidation. Volume as we see, increased sharply but outright volume, as a percentage of the total, decreased to the teens.
During this time, it appears that the selling came from managed money and as a result of March liquidation. It has been intense as it continued into the remainder of the week and keeping in check any strength. It appears, however, that the buyers are very happy with this situation as they welcome the opportunity to cover shorts and go long.
The very strong support is coming from index funds, who continue to build their long position, and swap dealers, who are end users or institutional buyers. Commercials were likely sellers of strength and buyers on weakness remaining net sellers for the period. In RC, managed money, who were sellers for several weeks, became buyers both as short buyers and new buyers. The delta long position also greatly increased in RC.
As the market hit below 121.00 the buying was obvious by anyone looking at the action. Forward buying was present, possibly consumer related, that caused some softness in forward spreads. In spite of the market ending on Friday near the lows, the COT report is bullish mostly because of the quality of buying, i.e. index, RC funds and commercial, possibly consumer. Going into Monday, the roll will continue, likely adding to the weakness and managed money will remain sellers in KC. But, as we see, buyers are plentiful. May is now the lead month.