BLUE LINE = BRLUSD
The range narrowed to 7.85c for the COT period with an average daily range of 4.23c and a net change of -2.10c in very light volume. As we see on the chart, weakness was present but the week also found support down to the 182.00 low. There are several 4,000 to 5,000 numbers highlighting the report. The Dec OI dropped by 4,719 lots, Index sold 4,289 lots which appears to have been executed by swap dealers, who sold 4,932 lots, and seems to be outright rather than delta. Note that also 4,402 EFS were posted. Index has been selling regularly.
The buyers were the commercial sector who bought futures but also shorted delta. Funds, motivated by momentum, were probably early buyers and then turned sellers, ending as net buyers but in the process they liquidated delta.
In Robusta, where funds are not motivated by momentum, they were steadfast buyers, as they have been, driving the arbitrage down to 84.39 and the FH spread to $65 premium. KC spreads during the COT period remained unchanged with the ZH on the soft side.
The days following the COT report showed significant strength. The market closed above 190.00 on Thursday and almost touched 196.00 on Friday. KC spreads were mixed. The ZH remained weak as it went from -2.80 ask to -2.80 bid. But the remaining spreads were strong as a combination of outright spread buying and possible origin selling took place together with a generally weakening Real. Robusta however lagged as KC rallied. The arbitrage ended at 96.92 while the FH spread weakened to 51.
The market looked very good, especially as it broke 190.00, after several attempts. But what can we expect at 200.00? The buyers are speculative while the sellers are primarily commercial. Corrections remain severe. Yet, the market seems to limit the downside by consolidating. There hasnít been any forward buying by the consumer sector but the cheap coffee that was purchased wonít last long. My view is that the market at this point can be traded either way with a long term slant to the upside, at least until we have a clearer coffee stocks picture. For the month of September, certified KC stocks are down 42,181 bags so far.
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