BLUE LINE = BRLUSD
The market began at the highs but the 235.00 general area proved to be a major level of resistance. Selling was intense and forced momentum selling that touched off stops. The COT report shows massive speculative selling that set a range of 25.75c and a net change of -21.75c. Part of the spec liquidation, including Index, is a result of J options that were either abandoned or exercised. In a bull market with a pronounced speculative long position, expiration always presents the possibility of a drop in prices. Commercials and market makers were the buyers in KC. In RC, the changes were not as dramatic but commercials were buyers while all other sectors were sellers. Note that the arb dropped 17.21c from the highs of the period to 116.76. RC did not pursue KC in its weakness.
Spreads became weak as outright prices dropped. Every day buying of spreads takes place on the close. From what I see, commercials are split in direction and specs are long spreads. Warehouse stocks have been rising rapidly. Brazil is delivering on ICE at a discount to settlement. This is the youngest coffee in the warehouses. Nevertheless, KN options on spreads are still being bought at strikes of 2.00 and 3.00 that will expire next month.
The days following the COT report were marked by continued weakness. Prices again tested the 210.00 area. But on Friday, the market managed to close above 220.00, possibly due to Friday short covering. There’s no reason why the market can’t continue higher as momentum funds will likely be buyers. However, resistance levels will be hurdles.
USDBRL closed at 5.0236