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BLUE LINE = BRLUSD
The selling which pushed prices to the low of 143.85 appear to have been option expiration related. IMO, this indicates that option buyers, mostly speculative, were positioned on the long side as they implemented their strategy focused on the marketís fundamentals, but forcing them to hedge their positions as expiration neared. Once expiration was behind us, the market resumed its upward spiral, setting a high of 153.70, a range of 9.85c and netting a change of positive 2.70c. Option expiration has rendered an unclear COT picture. There is evidence of long liquidation by some sectors. The new selling by commercials and the substantial buying by large traders are likely as a result of expiration. RC, which had no options that expired, shows selling by large traders and managed money. The arbitrage ended at a high of 84.08c discount to Arabica, and on Friday at 83.06.
The days following the COT report, showed a market that attempted several times to propel higher only to find intense selling each time, that drove prices to the general 150.00 area where the week ended. Far forward selling was evident which is likely origin, especially since EFP were posted as distant as Dec23. It appears that during the post-COT days commercials were sellers while funds were buyers. The OI shows slight changes in the total and consistent liquidation in July.
Spreads remained firm for most of the period due to market strength and forward selling. By the end of the week, spreads weakened. Warehouse stocks are still rising as Brazil bags continue to be deposited. July is slowly showing liquidation which may provide additional weakness to spreads.
The tone of the market is one that shows both moments of weakness and strength. There are some bearish factors present, the performance of the market as expiration approached. June 11 will be the next one. The performance of Robusta is also bearish. It makes sense for RC to be less reactive to fundamentals than KC since the issues exist with the Arabica crop only. Nevertheless, a weak RC weighs on KC as well. Roll period is approaching. What can we expect as a result? The macro markets have retrenched a bit as well. Still, the behavior of the market continues to be resilient and steady in spite of the several drops from the highs that it experiences.
Great posting by Gomes and Q regarding Brazil and global production. Now if we can figure out the stocks on hand, including private stocks.
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