BLUE LINE = BRLUSD
The price gains for the week of the COT report were only 2.35c but the market attempted to reach new levels of 260.00+, not seen since 2011, only to drop to the low for the week of 247.25. The COT report reflects buying in both markets coming from the spec sector and selling from commercials. Swap dealers and large traders covered shorts while funds mostly bought new. These activities include the results of option expiration, outright and CSOs and the continuation of H liquidation against forwards.
EFP/EFS activity was high at 25,002 lots as delivery on ICE was avoided. The supplemental shows a delta drop of 31,677 lots consisting of mostly abandoned options. 32,823 lots of spreads, likely mostly call spreads, expired. The net result of expiration and the roll was a reduction in H of 51,874 lots and an increase in K of 24,315 lots. What we can learn from the COT report is that the Coffee C contract is an important hedging vehicle. We can also see that it is an active option market for commercials and so we should not associate their large short position with a great deal of risk. Also evident is the scrambling of delta shorts and the momentum driven activity of KC funds. Swap dealers remain a mystery, but their liquidating activity looks to be institutional.
The behavior continues to be one where specs push prices higher giving commercials great opportunities to sell, sending prices lower. For the remainder of the week, resistance was seen at the 255.00 area as sellers became competitive, causing a drop of 11.60c from the previous day's high, ignoring the strong Real, but closing on Friday on a steady note. We can dismiss the weakness as post expiration, H liquidation activity, but sentiment could be changing as well. Possibly the reality of stocks available is more positive than believed to be and shipping may be loosening somewhat. In the US covid seems to be on a downtrend as mandates are relaxed and vaccinations are at close to 75%. For now, the market appears to be stuck in a range, and, for now, gaging support, as the consumer sector may show itself, and resistance may be useful. Possibly, 250.00 will be a new resistance point but guidance from Nagual is certainly welcome.