BLUE LINE = BRLUSD
The market remained flat but steady and moved higher the days following the report. The drop to the lows on the Friday within the COT period allowed for a 6.10c range managing a net change of positive 2.50c. The impetus behind the strength is of course fund buying in both markets. In KC, there was mostly short covering but new funds are entering on the buy side as well, including Index. In RC, it is mostly new buying by funds. Shorts are not yet ready to cover. The lagging RC market is placing the arbitrage in the 70c/lb. area.
The sellers are all the sectors in KC and most all in RC. In KC, swap dealers went short and small traders took profits. But in RC small traders covered shorts. Commercials were sellers as expected both in futures and options while large traders, market makers, bought from them.
Spreads were initially soft and as the market steadied they steadied but are essentially immobile. The H22K22 moved higher as a result of -1.00c put selling. Commercials have been implementing long strategies in spread options. Market makers and other commercials have been on the other side.
The COT is typical of a set up that we have seen before. Funds had sold to push the market lower and now they are buying to provide strength. The fate of the steady market is in the hands of longs and commercials. The 140.00 rejection on Friday showed us the eagerness of the sellers. Nevertheless, the market remains steady. The increase of delta selling by commercials will, and has, provided support on drops, imo. An overnight move above 140.00 would be a good sign of further strength.
« Back to index