BLUE LINE = BRLUSD
The market began at the lows in the 152.00 area and proceeded to climb each day, triggering funds to buy, and rallying 12.00c from the lows to 164.00. It could not reach the previous high of 166.75 as the elevated prices attracted competitive selling from commercials. The market weakened on the last day and this weakness spilled over to the days following the COT, reversing the funds to sellers and creating a heavy market. The buying by funds was mostly new. Large traders also bought new and covered shorts. In addition to outright buying there was new option buying by specs. Commercials were mostly sellers against options as neither consumer buying nor origin selling seemed to be present.
In RC, spreads were the focus as UX traded from -22 to -10 and continued to rise after the COT report to a level of positive 15, to close at 7 premium on Friday. The buying began as one trader, probably commercial, bought delta in the form of options on spreads. This triggered buying by several traders who were caught short. The reason is not clear but the rumor is that higher freight rates prompted the buying. If so, then KC spreads should have reacted in a similar fashion but they did not. In fact, the UZ weakened. The Robusta spread market can traditionally be bullied around by one or a few players. The justification for a premium market on spreads in RC is difficult to see. We discuss Arabica potential shortages in the forum but the plentiful supply of Robusta is uncontested. Comments are welcome.
The market looked very weak on Friday. It appears that any threat of cold weather puts the market on a friendly tone. Inevitably, funds will then react accordingly as trigger points are reached. Also inevitably, higher prices attract commercial selling, forcing prices lower, reversing the cycle until sufficient support builds once again. It is early in the winter and this last cold spell was very close to being something serious, imo. Nevertheless, the market doesnít feel like a bull market as the primary buyers are specs and not commercials with fear of shortages. Even consumer bids arenít evident until a few cents lower. We are still waiting for the impact of last yearís damage to show itself. The elevated prices that we have seen are strictly spec driven, possibly macro driven. Or maybe the supply issue is in the market and we have seen the consequences already reflected in the price. Thoughts?