KC managed to hold yesterday’s 15 week low by 30 points and traded in a range of down 10 to plus 210 on the day, ultimately settling with a 90 point gain. The rhythm of trading mirrored that of the BRL which traded steadier on the day but started to erase gains once news got out that President Michel Temer was not feeling well and hospitalized in Brasilia as the lower house gathered to vote (currently delayed) , on whether he should stand trial before the Supreme Court on corruption charges. Open interest climbing by 3,733 lots encouraged discretionary spec and bits of industry buying however overall volume was light and volatility went lacking.
Arabica closed the week on a disappointing note after an encouraging start settling down 160 points at 125.25, after posting a low of 124.00. European hours were muted yet higher, however as the Americas session commenced the failure to post a new high for the week seemed to send short term long specs to the exit. Roasters were quiet on the day – indeed commercial traders in general seemed to treat the session as a summer Friday. Arabica closely mirrored the BRL from 8am EDT onwards, with the DXY closely entangled as well. Given the recent irrelevance of the currency trade to KC, chalk that up to one of the several surprises in today’s trading. The COT is likely weighing on the minds of many as traders wait for a recalibration of the short side magnitude through Tuesday’s low. Options were slow, led by 600 N 100 Puts. Robusta was more resistant to the selling, settling down $8 at 1965 as structure supported flat price. X/F led the charge settling one tick off the high at 55 over. Options were quiet, led by paper buying of 425 H 1900 Puts.
KC put in its best performance since the 15th of September and was only bested by sister product Cocoa as the top performer in the CRB index. The H/H arb widened by 150 points as London put in its strongest performance since October 2nd, whilst the Nov/Jan spread strengthened yet again today to its highest level of 57 over. The primary catalyst for the move in New York was the ever increasing open interest which today rose by another 1,503 to a record 231,461 lots. Traders grow encouraged by the double bottom of Tuesday/Wednesday and the willingness for the market to find support in the 125-127 level since the middle of July when funds have been short in excess of 30,000 lots net. Today’s high of 13175 was just above the 13165 mid Bollinger band and slow stochastics have crossed positive which is starting to paint a constructive technical picture in what otherwise has been a rather bleak performance on the charts. Dec/March tightened 10 points to a 370 discount as funds remain short the front contract and trade demonstrate a willingness to position before the non- commercial sector starts to roll what very well could be a record gross short. Tomorrow should prove interesting especially after today’s pop and ahead of the COT report which will be accompanied by a 13,642 lot increase in open interest. Keep an eye on the gaps at 13355-13375 followed by 13745-13770, but in the meantime we will take today’s performance…baby steps.
Markets showed another day of consolidation as ideas about the condition of Brazil’s 18/19 crop are still far apart from each other. There is the camp which believes that the crop is healthy enough to produce a “monster crop” while the opposite opinion is also on the table. The market, already oblivious to the chatter at least in the short term, did not move far away from yesterday’s low levels.
Speculative short selling was still adding pressure to the terminal markets, but since the levels trading are as low as we have seen since June2016 (without counting the drop from June17) in arabica and since September 2016 in robusta, hedgers seem comfortable adding cover. Structure activity added considerable volume to London while trading up to +40 on the front month position. New York’s spread on the other hand traded in a 1-tick range at the bottom of its range. OI explosion in arabica adds to the equation perhaps giving a line to the bulls in the event of a weather mishap, which can cause a considerable short covering rally.
LRCX7 settled $7 lower with volume estimated at 23,363 lots, including 11,066 spreads, 508 EFP's and 0 EFS's. 2,640 calls and 1,286 puts also traded. Open interest 97,671 -2,145.
KCEZ7 settled 0.40 cents higher with volume estimated at 27,902 lots, including 7,678 spreads, 807 EFP's, 97 EFS's and 582 TAS. 4,170 calls, 5,243 puts also traded. €=$1.1766. BRL: 3.1711/$. CRB: 1.8462. Crude oil 51.92. S&P500 2553.75. Open interest 226,320+3,316.
Arabica extended its end of week rally across the weekend as the non-commercial short positioning and drier Brazilian weather forecast combined to buoy prices 95 points higher to 130.95. The BRL fell nearly 1%, yet remains marooned in a trading range with little apparent impact on either systematic models or the behavior of the Brazilian farmer. Options were heavy in screen trading as vol was bid throughout the day. Paper bought 4200 H 170 / 180 CS, helping boost the total H8 call volume to 11,578. Total call volume on the day was a staggering 17,575 – particularly when considering the pedestrian 210 point range in futures. Puts featured fairly good volume as well at 6901, though the 2100 H 115 / 105 PS that likewise traded on the screen contributed 61% of the volume and improved the surface optics. Robusta sunk $12 on the day yet structure remained firm into 1Q18.
Arabica coffee futures for December delivery settled 85 points lower, at 127.20 cents a pound Monday, as the forecasted rains began to develop across the Brazilian coffee belt during the weekend. A firm dollar also contributed to put pressure on the prices. The dollar has risen in recent sessions as market participants get more positive that the Federal Reserve will increase the interest rates before the end of the year. The euro was affected by the Catalan vote in Spain, that generates political uncertainty in the euro-zone. The heavy rains in Brazil added bearishness to the grain and soy complex. Crude oil lost 2.11 % at $50.58 as data released suggested a bigger global production.
Nearby structure drives further into premium to provide support to London as momentum fuelled selling in New York fails to spill into Robusta.
Overnight Dollar strength resulted in early pressure across much of the wider commodity complex although a narrowing arbitrage limited the downside momentum of London. Additional support was generated via the Nov/Jan spread which drove further into premium, strengthening into $33 premium through 1500 lots. Flat prices responded to the strength in the nearby structure, with fresh technical buying emerging as values drove through the 20 day moving average at $1982 and Friday’s high at $1986. A void or resting overhead origin selling did little to provide firm resistance. A settlement above the option strike at $2000 is likely to be viewed favourably by participants, with technicians now targeting a re-test of the recent high at $2038 basis Nov17
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