BLUE LINE = BRLUSD
The market began on a weak note to hit a low of 204.20 but found support as fresh buying drove prices higher and causing the momentum funds to reverse. Volume was thin as spreads progressively dominated as the week progressed. The COT report doesn’t reveal much as it shows small changes of the sectors in both markets, as traders reacted to the two way market that we see. Strength continued in the days following the COT report in spite of the strong trade resistance, assumingely. On Friday, prices broke through the 120.00 level for the third consecutive time in the week. Liquidation followed to send prices to 211.95 but the resilience of the market showed itself as the market rallied to settle at 217.20.
Spreads were mixed as they continue to find their own path independent of futures. The UZ began to show its weakness as it eased regardless of outright or other spreads direction. We are entering August and the focus is U. The roll will begin but U liquidation has already begun. At hits high, the U OI was around 103,000 lots and is now, as of Thursday’s close, 86,306 lots. In addition to the OI are options. As of now, and only with options on spreads, there are 12,750 Calls open below Friday’s settlement and 12,800 Puts. Of course, many are hedged. There are 5,580 Calls that are out of the money that extend to an 8.00c striking price. Expiration for U is 8/12 and FND is 8/23.
The direction of the market continues to be unclear to me. This COT period and the days after deviated from the previous COT’s bearish expectations as well as my own. My expectations for now are neutral as the behavior of the market is steady but the looming U outright, options and spread liquidation are bearish, at some point. Go with the flow.
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