BLUE LINE = BRLUSD
The four day trading week covered in the COT report yielded a strong 16.60c move higher that ended with a net change of +10.55c. The sector that was mostly responsible for the strength was Managed Money that bought new and covered shorts in both KC and RC. The gross long position of funds is 44,867 lots long in KC and 33,084 in RC. The short positions are small. Although these long positions havenít been this high for a couple of years or so, they seem to have more room to get longer. In addition to funds buying futures, they also again bought calls in the form of spreads. (The July option open interest will follow this report sometime this weekend). Large traders also bought in KC as small traders bought in RC. Index funds sold some longs and added shorts and, of course, commercials and swap dealers were the primary sellers in both markets.
The build-up of managed money longs may be construed as bearish. However, the move that the market experienced in light volume indicates an easing of resistance. Although there was what appears to be origin selling in forwards, which subsided as prices eased and as the Real strengthened, option hedging seems to be less of a contributor to resistance as it was at lower prices. The July OI is dropping as expected but the total OI shows a slight change only, indicating that, imo, traders are content with their positions and are rolling with spreads into other months. For the COT period and the days following, the N21 OI dropped 12,519 lots. The U21 OI increased by 7,780 for the same period and the Z21 is up 3,640 lots.
Spreads began to show weakness as the market retreated from the highs. The NU and UZ show little strength and are mostly weak as the roll continues. Forward spreads are steadier but even they are showing signs of frailty. Warehouse stocks increased by 21,695 bags for this month so far and with around 120,000 bags waiting for certification. Interest rates in both countries, the US and Brazil, may rise as inflation is becoming an issue in many countries. Regardless what we walk away with in regards to the COT and the OI, ultimately fundamentals will dictate both the impact on spreads and outright futures, with consideration to spec positions.
The days after the report shows an increase in selling interest. Whether funds have become sellers is unknown but prices have been generally under pressure. The recovery on Friday may have been a typical winter weekend preparedness, or short covering, or roll period erratic behavior, or a resumption of the upward trend. Spreads steadied as well
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