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Weekly: Speculators Drive ICE Cotton Higher; Phase-1 Signing, USMCA, NAFTA Clearance Boosts Market Confidence

19 Jan 2020 6:48 pm
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Mumbai (Commodities Control) – ICE Cotton lost its Seventh consecutive weekly gain by a 1 point. Since December 4, the March contract rallied nearly 800 points, from a low of 64.05 cents to a high of 71.96 cents on Monday. Friday’s close marked a triple digit gain for cotton futures. The mid-week pullback was no surprise, as the market got a bit overextended over past few weeks, both from a technical as well as a fundamental point of view.

ICE cotton rallied 49 to 103 points in the front month futures over the weekend. The fibre rose on Friday due to market optimism over the signing of a Phase 1 deal with China and the U.S. Senate's approval of a revised North American trade agreement. It was further boosted by speculative buying.


ICE Cotton contracts for March rose 103 points to settle at 71.25 cents per lb. It traded within a range of 69.95 and 71.35 cents a lb. March futures ended the week with a 1 point loss. While May 20 Cotton closed at 72.19, up 100 points. March-May spread stood at 94 points, down from 115 points in the previous week.


The past week was a dramatic one. Right from the doubts before actual signing ceremony to the nervousness pertaining clarity of the signed document and actual Chinese demand drove the market. Cotton market scaled 8-months high ahead of Sino-U.S. trade deal and USDA’s lowering of production estimate by 1, 10,000 bales. While market went in ‘Wait and Watch’ mode on Tuesday, as ICE cotton contracts ended in red, down 15-27 points. This followed another steep correction on Wednesday on account of profit booking. This was a classic case of “Buy the rumour, Sell the Fact”, post the trade deal signing. Market ended 55-106 points down. Concerns regarding demand dampening of cotton within China continued to keep lid on prices through Thursday, as well. However, Friday got the speculative buying started.


This week saw some very supportive fundamental news unfold in the market. There was the phase one deal with China, the passage of the USMCA, NAFTA’s replacement, a strong weekly exports-sales report, and the Dow Jones stoutly above 29,000-plus.


China's state media Xinhua cited comments made on Wednesday by Vice Premier Liu He, saying he sees the signing of the Phase 1 deal as mutually beneficial for future relations between Beijing and Washington.


The U.S.-Mexico-Canada trade agreement (USMCA) was passed by the U.S. Senate on Thursday. The agreement revises the older North American Free Trade Agreement.


Nearly all of speculative buying has been short-covering, British merchant Plexus Cotton said in a research note on Thursday.


Meanwhile experts will be closely watching India cotton scenario. The Cotton Corporation of India (CCI) has procured nearly 4 million bales from farmers so far in the 2019/20 marketing year started on Oct. 1, compared to 1.08 million bales bought in all of last year. Increased buying by the CCI is expected to limit exports from India and support global prices.


As per market information, however, over 20 lakh bales of cotton have already been exported from the current cotton crop and export might reach the level of 60 lakh bales, as against 50 lakh bales estimated by CAB.


Commitment of Traders report with data and positions from Tuesday the 14th, managed money was listed at 30,263 contracts net long, the highest position on net in 56 weeks. The net long grew wk/wk, as spec trader Open Interest shorts were 3,909 lower and longs were 5,474 higher wk/wk. The open interest stood at 2, 99,557 contracts, up 19466 contracts from the previous week.


Certificated cotton stocks deliverable as of Jan.16 totaled 6,792 480-lb bales, unchanged from 6,792 in the previous session.


Market believes that, with the Fed expanding its balance sheet by $400 billion since August, with financial markets still in exuberant mood, with the ‘Phase One’ trade deal promising more Chinese cotton purchases going forward and with US commitments well advanced, there’s unlikely to be much pressure on values.


The market believes that there is plenty of underlying support and prices will eventually push higher again.


Support and resistance for Cotton #2 lies at 69.44 cents and 72.28 cents, respectively.

(Commodities Control Bureau)


       
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