BLUE LINE = BRLUSD
The market began at the lows, touched 250.00 and retreated, only to break through this level during the days following the COT period, to trade above 260.00 and then correct. Although volume was high, outright volume was only at 25% of the total as rolling from H to forwards rapidly reduced the H. The days following the report consisted of further H liquidation as options expired, bringing the H OI to around 35k and K to 99k. In the first two days after the report the total OI dropped due to options but the K OI swelled to 117,907 lots with more H to roll.
The COT report attributes the strength to all spec sectors. Small and large traders bought, 5 short funds reversed while 8 new funds bought. Swap dealers bought the most representing institutional or commercial buying, possibly both. Index bought. Some of the buying by many of these sectors could be delta short covering. In RC, there was some buying and funds did not sell this time. Once the market hit 260.00 in KC, after the COT period, option hedging increased. Weakness continued after option expiration and Friday's market ended on a weak note.
The behavior of the market has been such that weakness is to be bought. There are still bullish signs both technically and in spread behavior as warehouse stocks continue to fall. However, as prices dropped on Friday, pockets of sell stop could be seen. We also see from the volume numbers that the market is thin and can be easily moved. Spec hype is increasing as major news outlet advertise the shortages in the market as well as the bullish projections in all markets.
Spreads have been ultra-strong. N3U3 traded at +4.75 (closed at +3.30). Requests for CSO quotes include N2NU2 +5.00 calls (closed at +1.95). Fences are being bought in big numbers in the CSO market (buying calls and selling puts). If spreads are any indication of outright market direction, then the market remains bullish.
Nothing has changed in the coffee world as far as fundamentals, shipping issues, the low Real (improving a bit lately), charts and sentiment. If spec liquidation occurs, creating an avalanche, support should come from the physical sector. Caution.
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