BLUE LINE = BRLUSD
The market began at the highs, at previously visited levels, dropped 10.15c in two days and netted a change for the period of -3.35c. Liquidation was present in July, in both markets, but mostly in the form of rolling outstanding positions into Sep and other months. There was also option selling including option spreads in KC. But new selling is evident as well by all spec groups in KC and in managed money in RC. Itís possible that this new selling could be related to option expiration as hedging of calls may have been completed or it could indicate a reversal by systems funds triggered by the drop in prices. Whatever the reason, selling was consistent but finding commercial support on weakness.
Spreads were also under pressure. JulSep traded down to -2.15 as CSOs also expired. Other spreads weakened as very little forward selling was present while forward buying increased. All factors related to spreads seem bearish namely, warehouse stocks, interest rates and speculative positions, with the potential shortage predicted for 2022 being the exception.
From a COT point of view, funds will continue to apply pressure while commercials will continue to buy. From a market behavior point of view selling of rallies was a successful strategy while July options were still on the board. Now that they have expired I would feel more comfortable buying weakness, especially when prices reach a level where pressure and support find an equilibrium. Other problems are increasing in that many goods and materials are becoming scarce. Coffee continues to flow for now. Possibly we can start a discussion on the consequences of a disruption in the coffee chain, such as we are seeing in Colombia.
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