BLUE LINE = BRLUSD
In spite of the weakness of the COT period, prices managed to close 3.85c higher. Outright volume was light, an average of 14,654 lots per day, in a range of 11.40c. The days after the COT the market spent a lot of time in the general 200.00 level with many attempts to move higher and many rejections. Much of the strength came from Robusta where funds mostly bought new. When the buying stopped, both markets retreated. On Friday, the market closed in a steady tone possibly driven by short covering. The KC COT shows commercial buying and large traders new selling. Option activity shows commercials increasing their short delta and specs buying of call spreads.
Spreads are dominating the market as the roll, and other activity, continue in both markets. In RC there have been a large increase in EFP postings some of which appear to be spreads and others may be a bypass of ICE delivery. The X OI lost over 18k lots while F was up as a result of new fund buying. The FH traded to the mid $80s premium while XF remained at a discount. In KC, the front spread, ZH, remained on the weak side but ended trading at -2.65 on Friday. The Z OI lost almost 8k lots and will of course continue to drop. Other KC spreads remained strong, especially whenever the outright market rose.
Usually, spreads strengthen as origin sells forwards but there hasnít been much of that in my observation, even with the very weak Real. The main reason why spreads are strong is outright buying of either spreads themselves or in the CSO market. Warehouse stocks are mostly being withdrawn, the supply chain is threatened and production in general has been compromised as a result of damaging weather situations. The spreads are behaving as a result of anticipation of shortages by both specs and commercials. Yesterday, a request for KN +2.00 calls was floating. KN is -.45/-.40. Viet Nam has an actual supply chain issue yet the XF, the spread most affected, is trading at a discount. The front spread will always reflect reality while forward spreads reflect anticipation.
As to the outright market, so far 200.00 is a level of support, and may well be an area to go long. The market waits for the release of additional production estimates.
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